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Facts
The revenue filed three appeals challenging the Ld. CIT(A)'s deletion of additions. These additions included a disallowance under Section 14A read with Rule 8D for A.Y. 2014-15, an addition of Rs.12,62,000 for subscription fees for A.Y. 2012-13, and an addition of Rs.18.34 crores as deemed interest on a loan to M/s Bharat Coking Coal Limited for A.Y. 2013-14.
Held
For the Section 14A disallowance, the Tribunal upheld the CIT(A)'s decision, noting that the assessee had used government-subscribed share capital for investments and not borrowed funds, aligning with prior Tribunal decisions. Regarding the subscription fee, the deletion was sustained as the revenue could not demonstrate errors in the CIT(A)'s factual findings. For the deemed interest, the Tribunal agreed with the CIT(A) that, based on the 'real income' principle and the fact that the subsidiary was emerging from BIFR, no hypothetical interest could be levied, citing Supreme Court and High Court precedents. All three appeals were dismissed.
Key Issues
Whether disallowance under Section 14A read with Rule 8D was justified; legality of an addition for subscription fees; and whether deemed interest could be levied on a loan to a subsidiary based on the principle of real income.
Sections Cited
14A, 8D
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI RAKESH MISHRA
O R D E R Per George Mathan, JM : These are three appeals filed by the revenue against the separate orders dated 07.03.2023 & 24.07.2023, passed by the ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi for A.Yrs. 2012-2013, 2013-2014 & 2014-2015, respectively. 2. Ms. Ranu Biswas, ld.Sr. DR appeared on behalf of the revenue and the counsel who appeared in the present case was not in uniform, therefore, the counsel was not heard. 3. In regard to filed for A.Y.2014-2015, it was submitted by the ld. Sr.DR that the issue was against the action of the ld. CIT(A) in deleting the addition made by the AO representing the disallowance u/s.14A of the Act. The ld. Sr. DR vehemently supported the order of the AO.
&1022/Kol/2023 4. A perusal of the order of the ld. CIT(A) shows that the AO had revoked the claim u/s.14A r.w.r.8D. The impugned assessment year is A.Y.2014-2015. A further perusal of the order of the ld.CIT(A) shows that the ld. CIT(A) has followed the judicial precedents and discipline in following the order of the coordinate bench of this Tribunal in assessee’s own case for AYs.2008-2009, 2009-2010 & 2010-2011 in 358/Kol/2013 & 1321/Kol/2013, respectively, wherein the coordinate bench of the Tribunal has held as under :- “10.3 Rule 8(2)(ii) can be invoked when the assessee had incurred expenditure by way of interest during the previous year relevant to assessment year which is not directly attributable to any particular income or receipt. In this regard we have gone through the Balance sheet of the assessee for A. Yr. 2008-09. The assessee had invested Rs.6,31,637.37 Lakhs in its subsidiaries and had received the same amount from Govt. of India as subscribed share capital. It is pertinent to mention here that the assessee is a public sector undertaking of the Govt. of India and whole of the subscription of the share capital was subscribed by Govt. of India till the present A. Yr. and there was no private placement in the form equity before A. Yr.2008-09. The entire share capital invested in the subsidiary companies from which exempt income in the form of dividend was earned was received by the assessee from the Govt. of India. The assessee had not raised loan or borrowed money for making investment in the subsidiaries. In the written submissions filed before the Id. CIT(A) the assessee had also explained the interest expenditure incurred by it was relatable to the business income of the assessee, which was non-exempt. In view thereof, we do not find merit in the contentions raised by the revenue. Accordingly ground no.1 raised by the revenue is dismissed."
The ld. CIT(A) in para 5.2 of his order has also extracted the above findings of the coordinate bench of the Tribunal. The revenue has not been able to dislodge these findings as arrived at by the ld. CIT(A). Consequently, we find no reason to interfere in the order of the ld. CIT(A) on this issue. Thus, the appeal of the revenue in filed for A.Y.2014-2015 stands dismissed.
&1022/Kol/2023 6. In regard to appeal of the revenue filed in for A.Y.2012-2013, it was submitted that the ld. CIT(A) had deleted the addition in respect of an addition of Rs.12,62,000/- paid towards subscription fee. The ld. CIT(A) had verified the accounts of the assessee as has been explained in para 5.1 & 5.2 of his order. The revenue has not been able to point out any error in the said findings of the ld. CIT(A). The revenue has mentioned that the appeal has been filed on account of audit objection even though the tax effect in the impugned appeal is below the prescribed limit. As the revenue has not been able to dislodge the findings of fact as arrived at by the ld. CIT(A) on the issue involved in the present appeal, we do not find any reason to interfere in the order of the ld. CIT(A). Consequently, the appeal of the revenue in ITA No.1411/Kol/2023 filed for A.Y.2012-2013 stands dismissed.
In regard to appeal of the revenue filed in A.Y.2013-2014, it was submitted by the ld. Sr. DR that the issue was against the action of the ld. CIT(A) in deleting an addition of Rs.18.34 crores being deemed interest on a loan given by the assessee to M/s Bharat Coking Coal Limited (BCCL). It was the submission that the ld. CIT(A) had deleted the addition by following the principle laid down by the Hon’ble Supreme Court in the case of Godhra Electricity Co. Ltd., reported in 225 ITR 746 (SC) as also the decision in the case of UCO Bank, reported in 237 ITR 889 (SC) and the decision of the Hon’ble Calcutta High Court in the case of Balrampur Commercial Enterprise, reported in 262 ITR 439 (Cal). It was the submission that the ld. CIT(A)
&1022/Kol/2023 had deleted the addition on the ground that M/s Bharat Coking Coal Ltd. was before the BIFR. It was the submission that the BIFR had, vide an order dated 14.02.2013, categorically held that M/s Bharat Coking Coal Ltd. was no more company under BIFR. It was the submission that as the order of the BIFR is dated 14.02.2013, for the impugned assessment year the addition as made by the AO of an amount of Rs.18.34 crores, is liable to be reversed.
We have considered the rival submissions. Admittedly the impugned assessment year is A.Y.2013-2014 i.e. from the period 01.04.2012 to 31.03.2013. The BIFR’s order is dated 14.02.2013 that is towards the fag end of the impugned assessment year. Admittedly, during the said period M/s Bharat Coking Coal Ltd. was just coming out of BIFR. The assessee has not charged any interest on the loans given to M/s Bharat Coking Coal Ltd.. When there is no specific agreement in regard to charging of interest on the loans/advances given to M/s Bharat Coking Coal Ltd., by applying the mercantile system of account, a deemed interest cannot be levied. Here, it is noticed that the ld. CIT(A) has applied the principle of real income and no hypothetical income that is to be brought to tax. The alleged interest in respect of the advances to M/s Bharat Coking Coal Ltd. even during the impugned assessment year, is only a hypothetical income and, thus, in view of the principle laid down by the Hon’ble Supreme Court in the case of Godhra Electricity Col. Ltd.(supra) and in the decision of the Hon’ble Calcutta High Court in the case of Balrampur Commercial Enterprise (supra), which clearly applies to &1022/Kol/2023 the facts of the present case, the ld. CIT(A) has rightly deleted the addition. As the revenue has not been able to dislodge the findings recorded by the ld. CIT(A) on the issue involved in the present appeal, we are of the view that the order of the ld. CIT(A) does not call for any interference. Consequently, appeal of the revenue filed in