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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A : HYDERABAD
Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER S.S.GODARA, J.M. :
This Revenue’s appeal for AY.2013-14 arises from the CIT(A)-3, Hyderabad’s order dated 09-11-2016 passed in case No.0083/CIT(A)-3/16-17, involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file/records perused.
The Revenue has proposed the following substantive grounds in the instant appeal:
“1. The Ld.CIT(A) erred both in law and facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowances of Rs. 7,40,94,331/- made u/s.14(A) r.w.r.8D of the IT Rules disregarding the CBDT circular No.5 of 2014 dated 15.02.2014 which mandates the Assessing Officer to make such disallowance even if the investments do not yield exempt income? 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.199,98,23,666/- made towards disallowance of interest on capital liabilities based on additional evidences submitted by the appellant in the appeal proceedings without affording an opportunity to the Assessing Officer as required u/r 46A of the IT Rules 1962. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.1398,54,00,000/- made towards disallowance of provisions made on financial restructuring package in the appeal proceedings without affording an opportunity to the Assessing Officer as required u/r 46A of the IT Rules 1962. 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the Assessing Officer to allow the amount disallowed towards claim of consumer Contribution Amortization of Rs.39,44,46,826/- after further verification, despite a clear finding given by the Assessing Officer in the assessment order to the effect that, depreciation on the assets created out of utilization of consumer contributions was claimed and allowed in the P&L A/c and the amortization claim in the computation of income amounts to double deduction. 6. Any other ground(s) that may be urged at the time of hearing”.
Coming to the Revenue’s first and foremost substantive ground seeking to revive Section 14A r.w. Rule 8D disallowance of Rs.7,40,94,331/-, we find no substance in the instant ground since the CIT(A) has held that the assessee has not derived any exempt income in the relevant previous year. Case law:-
i. CIT Vs. Chettinad Logistics Pvt. Ltd., [80 taxmann.com 221] (Madras); ii. CIT Vs. Corrtech Energy Pvt. Ltd., [223 Taxman 130] (Guj); iii. Cheminvest Ltd., Vs. CIT (2015) [378 ITR 33] (Del) holds that Section 14A read with Rule 8D applies only in relation to an assessee’s exempt income and not otherwise. We therefore affirming the CIT(A)’s findings deleting the impugned disallowance. The Revenue fails in its first substantive ground therefore.
We next come to Revenue’s second substantive ground that the Assessing Officer had rightly added assessee’s interest on capital liabilities to the tune of Rs.199,98,23,666/- which stands deleted in the CIT(A)’s order after admitting additional evidence for violation of Rule 46A of the Income Tax Rules, 1962. The lower appellate discussion to this effect reads as under:
“7.1 The sixth ground of appeal is as under:
6. The Assessing Officer is not justified in disallowing Rs.99,98,23,666/- being 50% of interest of (Rs.399,96,47,332/- stating that the Appellant had claimed 50% rate of depreciation on fixed assets put to use during the year on the ground that the date of use of such assets cannot be furnished whereas interest was claimed in full. The Assessing Officer ought to have seen that interest of Rs.399,96,47,332/- was incurred on term/ working capital loans in the normal course of business but such loans were not used for acquiring fixed assets which are put to use during the year and in fact the Appellant itself had capitalized interest of Rs.18,39,94,797/- incurred on fixed assets put to use during the year.
7.2 During the course of its business the assessee used borrowed funds towards acquisition/ construction of assets. Since the exact date of completing the construction and putting the asset to use cannot be easily determined and also to avoid possible problems from IT Department, the assessee claimed only 50% of the depreciation on all the assets added during the year. He has been following this practice every year. Whereas the Assessing Officer observed that the assessee debited an amount of Rs.399,96,47,332/- towards interest on capital liability", the Assessing Officer further observed that following the same logic which the assessee adopted for the purpose of depreciation, only 50% of interest expenses are to be allowed and the balance of Rs.199,98,23,666/- is to be disallowed. 7.3 It was explained by the appellant that interest of Rs.399,96,47,332/- pertains to interest on all the loans taken including the loan taken in earlier years for meeting the cost of fixed assets and working capital. The appellant further submitted that total fixed assets added during the year were Rs.388.64 Crores on which obviously the assessee could not have claimed interest of Rs.399.90 Crores. 7.4 After considering the information on record and submissions of the appellant, I consider there no merit in addition made by the Assessing Officer. The appellant being extremely cautious claimed only 50% of the depreciation as he might not be in a position to prove to the Department the exact date of putting the asset to use. The same logic cannot be applied for the purpose of allowing interest as the interest has to be paid from the date of obtaining loan. Therefore the disallowance made by Assessing Officer is deleted”.
4.1. We have given our thoughtful consideration to rival pleadings against and in support of the impugned interest addition on capital liabilities. We notice first of all that the CIT(A) has not admitted any additional evidence at all so as to invoke rule 46A of the Income Tax Rules. It also emerges that the Assessing Officer has disallowed/added the impugned interest @50% going by the assessee’s depreciation claim to the said extent only than recording a clearcut finding on facts that the same had not been incurred wholly and exclusively for the purpose of business u/s.37 of the Act. We further find that the Revenue is itself fair enough in not disputing the assessee’s entitlement to claim the impugned interest on merits to this effect as well. We thus affirm CIT(A)’s findings qua the instant second issue therefore.
The Revenue’s third substantive ground seeks to revive the Assessing Officer’s action disallowing provision made on financial restructuring package to the tune of Rs.13,98,54,00,000/- which stands reversed in the CIT(A)’s order, as under:
5.1. Learned departmental representative is fair enough not being able to pinpoint any violation of Rule 46A of the Income Tax Rules since the CIT(A) has not admitted any additional evidence filed at the assessee’s behest. Coupled with this, it has come on record that the assessee has itself disallowed in its computation, a sum of Rs.2240.42 Crores [(expenses qua power purchase cost, finance and employee costs (supra)]. This is what led the CIT(A) to delete the impugned disallowance/addition. We accordingly affirm the same since there is no rebuttal to correctness thereof coming from the Revenue side.
We are now left with last issue of consumer contribution amortization disallowance of Rs.39,44,46,826/- made by the Assessing Officer and deleted in the CIT(A)’s order as under:
On one hand the appellant claims that amount of Rs.169,81,09,511/- does not included depreciation on assets purchased from consumer fund, whereas the Assessing Officer states that this amount includes Rs.39,44,46,826/-. Therefore what needs to be done is to verify whether the amount of Rs.169,81,09,511/- includes Rs.39,44,46,826/- or not? The Assessing Officer is directed to verify the same, if the amount of Rs.39,44,46,826/- is already included in depreciation of Rs.169,81,09,511/-, the appellant would not be entitled for additional claim of Rs.39,44,46,826/-. Therefore this ground of appeal is treated as partly allowed”.
6.1. Suffice to say, CIT(A) has only directed the Assessing Officer to verify the relevant facts at the Assessing Officer’s end itself and therefore, the Revenue itself cannot be taken as an aggrieved party per se except the fact that such an exercise of lower appellate jurisdiction is no more exigible as per the Finance Act, 2001 omitting ‘or he may set aside’ w.e.f.01-06-2001. We thus accept the Revenue’s argument in principle but follow the very course of action ourselves and direct the Assessing Officer to verify the necessary facts pertaining to the instant issue. The Revenue’s instant last substantive ground is partly accepted for statistical purposes in foregoing terms.
This Revenue’s appeal is treated as partly allowed for statistical purposes.
Order pronounced in the open court on 11th June, 2021