ASST CIT CEN CIR 46, MUMBAI v. JSW ENERGY LTD, MUMBAI

ITA 981/MUM/2014 | 2007-2008
Pronouncement Date: 07-10-2016

Appeal Details

RSA Number 98119914 RSA 2014
Assessee PAN AAACJ8109N
Bench Mumbai
Appeal Number ITA 981/MUM/2014
Duration Of Justice 2 year(s) 7 month(s) 26 day(s)
Appellant ASST CIT CEN CIR 46, MUMBAI
Respondent JSW ENERGY LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-10-2016
Appeal Filed By Department
Bench Allotted J
Tribunal Order Date 07-10-2016
Assessment Year 2007-2008
Appeal Filed On 11-02-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH MUMBAI BEFORE SHRI R. C. SHARMA ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN JUDICIAL MEMBER ./ I.T.A. NO. 462/MUM/2014 ( / ASSESS MENT YEAR: 2007 - 08 ) JSW ENERGY LIMITED JSW CENTRE BANDRA KURLA COMPLEX BANDRA (E) MUMABI - 400 051 / VS. ACIT CENTRAL CIRCLE - 46 AAYAKAR BHAVAN M. K. ROAD MUMBAI ./ ./ PAN/GIR NO. AAACJ 8109 N ( A SSESSEE ) : ( RE VENUE ) ./ I.T.A. NO. 981/MUM/2014 ( / ASSESSMENT YEAR: 2007 - 08) ACIT CENTRAL CIRCLE - 46 AAYAKAR BHAVAN M. K. ROAD MUMBAI / VS. JSW ENERGY LIMITED JSW CENTRE BANDRA KURLA COMPLEX BANDRA (E) MUMABI - 400 051 ./ ./ PAN/GIR NO. AAACJ 8109 N ( REVENUE ) : ( ASSESSEE ) ASSESSEE BY : SHRI RAKESH JOSHI RE VENUE BY : SHRI K. RAVI KIRAN / DATE OF HEARING : 12.7.2016 / DATE OF PRONOUNCEMENT : 0 7.10 .2016 / O R D E R PER R. C. SHARMA A. M.: THE S E ARE THE CROSS APPEAL S FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR (A.Y.) 2007 - 08 . 2 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE AS SESSEE IS ENGAGED IN GENERATION OF POWER AND OPERATION AND MAINTENANCE OF POWER PLANTS AND PROJECT MANAGEMENT SERVICES. DURING THE COURSE OF SCRUTINY ASSESSMENT THE A.O. DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION U/S. 80 - IA IN RESPECT OF INTEREST INCOME . DISALLOWANCE WAS ALSO MADE U/S. 14A. A.O. ALSO RECALCULATED BOOK PROFIT U/S. 115JB AFTER MAKING ADDITIONS U/S. 14A. BY THE IMPUGNED ORDER THE CIT(A) GIVEN A RELIEF WITH REGARD TO ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.3 LACS THUS THE D ISALLOWANCE U /S. 14A WAS PARTLY DELETED BY THE LD. CIT(A). AGAINST THIS ORDER OF THE CIT(A) BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND F ROM RECORD THAT THE A.O. HAS TREATED THE INTEREST INCOME OF RS.2 35 87 315/ - AS INCOME FROM OTHER SOURCES IN PLACE OF BUSINESS INCOME . ACCORDINGLY NO DEDUCTION WAS ALLOWED WITH RESPECT TO THIS INCOME U/S. 80IA. THE CIT(A) CONFIRMED THE ACTION OF AO BY FOLLOWING DECISION OF HONBLE SUPREME COURT IN CASE OF PANDIAN C HEMICALS 129 TAXMAN 539. ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. FROM THE RECORD WE FOUND THAT THE INTEREST INCOME IS EARNED ON THE AMOUNT KEPT AS DEBT SERVICE RESERVE UNDER THE LOAN AGREEMENT FOR 2X130MW POWER PROJECT INCOME FROM WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. THE AMOUNT WAS KEPT AS DEBT SERVICE RESERVE FOR SMOOTH FUNCTIONING OF POWER PROJECT AND THUS IT WAS CONTENDED THAT THE INTEREST EARNED ON SUCH AMOUNT IS DIRECTLY RELATED TO THE POWER UNDERTAKING. 5 . THE LD. AR RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD V. CIT 343 ITR 89 (SC) AND CONTENDED THAT ONLY NET INTEREST SHOULD BE EXCLUDED FROM ELIGIBLE PROFIT AND NOT THE GROSS INTEREST INCOME. WE 3 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED HAVE CAREFULLY GON E THROUGH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. (SUPRA) WHEREIN IT WAS HELD THAT WHILE COMPUTING DEDUCTION U/S.80 HH C NET INTEREST INCOME WHICH HAS BEEN INCLUDED IN THE PROFIT OF THE BUSINESS OF ASSESSEE A S COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION IS TO BE EXCLUDED AND NOT THE GROSS INTEREST INCOME. RESPECTFULLY FOLLOWING THE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT WE DIRECT THE A.O. TO EXAMINE THE NATURE OF INTERES T INCOME SO RECEIVED BY THE ASSESSEE WHETHER IT IS INCOME FROM BUSINESS AND PROFESSION OR INCOME FROM OTHER SOURCES . THE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF ACG ASSOCIATED CAPSULES (SUPRA) IS APPLICABLE ONLY WHERE INTEREST IN COME IS ASSESSED AS BUSINESS INCOME . HOWEVER WHERE INTEREST INCOME IS ASSESSED AS INCOME FROM OTHER SOURCES THE BENEFIT OF NETTING CAN BE GIVEN ONLY WITH RESPECT TO THE INTEREST EXPENDITURE WHICH HAS BEEN INCURRED FOR EARNING THE INTEREST INCOME WHIC H HAS BEEN INCLUDED IN THE PROFIT OF BUSINESS OF ASSESSEE . ACCORDINGLY WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING AFRESH IN TERMS OF OUR ABOVE DISCUSSION. WE DIRECT ACCORDINGLY. 6. WITH REGARD TO DISALLOWANCE U/S. 14A WE FOUND THAT IN THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL THE ASSESSEE HAD MADE A DISALLOWANCE OF RS.5 28 211/ - UNDER SECTION 14A OF THE ACT BEING EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPT DIVIDEND INCOME AMOUNTING TO RS.28.18 CRORES . THE ASSESSING OF FICER HOWEVER IN THE IMPUGNED ASSESSMENT ORDER HAS MADE FURTHER DISALLOWANCE OF EXPENSES OF RS.9 14 54 978/ - UNDER S ECTION 14A OF THE ACT TREATING THE SAME AS EXPENSES INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. AS PER THE RECTIFICATION ORDER DATED DECEMBER 8 2010 THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT IN THE ASSESSMENT ORDER HAS BEEN RECTIFIED TO RS.9 04 80 767 / - . BREAK - UP OF THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT IS AS UNDER: 4 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED PARTICULARS AMOUNT IN RS. DIRECT EXPENSES 6 37 23 291 PROPORTIONATE EXPENSES NIL INDIRECT EXPENSES (0.5% OF AVERAGE VALUE OF INVESTMENTS) 2 67 57 476 TOTAL DISALLOWANCE 9 04 80 767 7. BEFORE THE LD. CIT(A) IT WAS CONTENDED BY THE ASSESSEE TH AT THE I NVESTMENT ARE IN THE NATURE OF BUSINESS ASSETS . A CCORDINGLY INTEREST ON BORROWING USED FOR SUCH INVESTMENT IS DEDUCTIBLE U/S.36(1)(III) AND NO DISALLOWANCE IS WARRANTED U/S. 14A. THE LD. CIT(A) DID NOT AGREE WITH THE ASSESSEES CONTENTION HOWEVER DISALLOWANCE MADE UNDER RULE 8D(III) WAS REDUCED BY THE LD. CIT(A) TO RS.40 18 773/ - AS AGAINST DISALLOWANCE OF RS.2 72 03 476 PROPOSED BY AO BY OBSERVING THAT EVEN THOUGH IN THE YEAR UNDER CONSIDERATION RULE 8D IS NOT APPLICABLE BUT REASONABLE DISALLO WANCE IS TO BE MADE. ACCORDINGLY HE ESTIMATED THE DISALLOWANCE AT RS.3 LACS PER MONTH ON ACCOUNT OF ADMINISTRATI VE EXPENSES AS AGAINST DISALLOWANCE OF RS. 2 72 03 476/ - MADE BY AO. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. 8. IT WAS ARGUE D BY THE LD. AR THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. FOR A.Y. 2007 - 08. HE FURTHER CONTENDED THAT NO DISALLOWANCE CAN BE MADE WITH REGARD TO THE FUND INVESTED FOR STRATEGIC INVESTMENT. HE FURTHER INVITED OUR ATTENTION TO TH E FACT THAT INTEREST EXPENDITURE HA S ALREADY BEEN REVERSED FROM INCOME WHILE COMPUTING DEDUCTION U/S. 80IA. RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ORIE NTAL STRUCTURE ENGINEERS P. LTD. IN SUPPORT OF THE PROPOSITION TH AT NO DISALLOWANCE OF INTEREST COULD BE MADE IN RESPECT OF INVESTMENT MADE IN SUBSIDIARY GROUP COMPANIES FOR CONTROL LING INTEREST. OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT THE ASSESSEE WAS EARNING TAXABLE INCOME FR O M SUBSIDIARIES. AS PER THE LD. AR SUFFICIENT INTEREST FR EE FUNDS WERE AVAILABLE WITH THE ASSESSEE THEREFORE IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE 5 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED CASE OF CIT VS. HDFC B ANK LTD. [2014] 366 ITR 505 (BOM) NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS WARRANTED. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALSO DELIBERATE D ON THE JUDICIAL PRONOUNCEMENT REFERRED BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY THE LD. AR AND LD. DR DURING THE COURSE OF HEARING BEFORE US. FROM THE RECORD WE FIND THAT THE A.O. HAS DISALLOWED DIRECT EXPENDITURE OF RS.6 37 23 291/ - MAINLY ON ACCOUNT OF INTEREST ON FUNDS INVESTED IN TAX FREE SECURITIES. HOWEVER MAJOR INVESTMENT WAS STRATEGIC. IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF ORIE NTAL STRUCTURE ENGINEERS P. LTD. (SUPRA) AND MUMBAI BENCH TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LIMITED ( ITA NO. 5408/MUM/2012 DATED 15.01.2014 ) AND J. M. FINANCIAL LTD. (IN ITA NO. 4521/MUM/2012) NO DISALLOWANCE OF INTEREST COULD BE MA DE IN RESPECT OF INVESTMENT MADE IN GROUP CONCERNS. ACCORDINGLY WE DIRECT THE A.O. TO EXCLUDE THE INVESTMENT MADE IN GROUP CONCERNS WHILE COMPUTING THE DISALLOWANCE OF INTEREST. WE FURTHER DIRECT THE A.O. TO VERIFY THE INTEREST FREE FUNDS AVAILABLE WITH T HE ASSESSEE FOR MAKING INVESTMENT. AS PER THE VERDICT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. [ 2009 ] 313 ITR 340 (BOM) CIT VS. HDFC BANK 366 ITR 50 5 (BOM) AND DECISION OF MUMBAI TRIBUNAL IN THE CASE OF ACIT VS PRAKASH I SHAH (ITA NO. 6349/MUM/2011) NO DISALLOWANCE OF INTEREST IS WARRANTED WHEN ASSESSEE IS HAVING SUFFICIENT OWN FUNDS FOR MAKING INVESTMENT . THE A.O. IS DIRECTED TO VERIFY THE AVAILAB ILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE FOR INVES TMENT. 10. IN VIEW OF THE ABOVE THE DISALLOWANCE MADE U/S.14A IS RESTORED BACK TO THE FILE OF THE A.O. FOR RE - COMPUTING THE DISALLOWANCE OF INTEREST IN TERMS OF THE ABOVE DISCUSSIONS. FURTHER IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF ACB INDIA LTD. V S. ACIT 374 ITR 108 W E DIRECT THE A.O. TO CONSIDER ONLY THOSE INVESTMENT ON WHICH DIVIDEND I S RECEIVED WHILE COMPUTING DISALLOWANCE U/S.14A. 6 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED SIMILAR VIEW HAS BEEN TAKEN BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENE RGY (P) LTD. 272 CTR 262 (GUJ) AND BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. LAKHANI MARKETING INCL. [2014] 272 CTR 265 (P&H) . THE A.O. IS ACCORDINGLY DIRECTED TO CONSIDER THESE JUDICIAL PRONOUNCEMENT S WHILE WORKING OUT DISALLOWANCE U/S. 14A. 11. ON THE OTHER HAND THE LD. D R INVITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2006 - 07 WHEREIN ISSUE WITH REGARD TO DISALLOWANCE U/S. 14A WAS RESTORED BACK TO THE FILE OF THE A.O. 12. LEARNED DR ALSO OBJEC TED TO THE DISALLOWANCE DELETED BY CIT(A) BY ESTIMATING ADMINISTRATIVE EXPENDITURE AT RS. 3.00 LACS PER MONTH AND CONTENDED THAT WITHOUT GIVING ANY COGENT REASON THE CIT(A) HAD REDUCED DISALLOWANCE OF RS.2 67 57 476/ - TO RS.36.00 LACS. AS PER LEARNED DR LOOKING TO THE DIVIDEND INCOME OF ASSESSEE AMOUNTING TO RS. 28.18 CRORES THE DISALLOWANCE MADE BY THE AO WAS PERFECTLY JUSTIFIED AND THE CIT(A) HAS REDUCED THE SAME CONSIDERABLY WITHOUT GIVING ANY JUSTIFICATION. 13. WE HAVE CONSIDERED RIVAL CONTENTIONS A ND ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 WHEREIN TRIBUNAL HELD THAT RULE 8D IS NOT APPLICABLE PRIOR TO THE ASSESSMENT YEAR 2008 - 2009. ACCORDINGLY THE MATTER WAS RESTORED BACK TO THE FILE OF AO FOR DECIDING AFRESH AS PER THE DIRECTIONS GIVEN THEREIN. THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2007 - 08 RULE 8D IS ALSO NOT APPLICABLE TO THIS ASSESSMENT YEAR IN TERMS OF THE DECISION OF BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURI NG COMPANY 328 ITR 81. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN 7 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED CASE HAVING SIMILAR FACTS WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR COMPUTING AFRESH DISALLOWANCE WARRANTED UNDER SECTION 14A KEEPING IN VIEW OUR ABOV E OBSERVATION. WE DIRECT ACCORDINGLY. 14. ASSESSEE HAS ALSO TAKEN GROUND FOR ADDITION OF DISALLOWANCE MADE UNDER SECTION 14A WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. AS WE HAVE ALREADY RESTORED A GROUND WITH REGARD TO COMPUTATION OF DISALLOWANCE / ADDITION MADE UNDER SECTION 14A TO THE FILE OF AO IN THE INTEREST OF JUSTICE THIS GROUND OF ASSESSEES APPEAL IS ALSO RESTORED BACK TO THE FILE OF THE AO FOR DECIDING AFRESH AFTER RE - COMPUTING THE DISALLOWANCE TO BE MADE UNDER SECTION 14A. WE DIRECT ACC ORDINGLY. 1 5 . IN THE RESULT BOTH THE APPEALS OF THE REVENUE AND TH E ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 07/10/ 201 6 S D/ - SD/ - ( SANDEEP GOSAIN ) ( R. C. SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI ; / DATED : 07/10 / 201 6 . . ./ ROSHANI SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. / DR ITAT MUMBAI 8 ITA NO S . 462 & 981 /MUM/2014 (A.Y. 2007 - 08) JSW ENERGY LIMITED 6. / GUARD F ILE / BY ORDER / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI