NSL RENEWABLE POWER PRIVATE LIMITED ,HYDERABAD vs. DEPUTY COMMISSIONER OF INCOME TAX ,CIRCLE-5(1), HYDERABAD

At the outset, it was brought to our notice that the assessee filed this appeal with a delay of 185 days. In this connection, assessee submitted a petition for condonation of delay stating that the Hon'ble Supreme Court in the Suo Motu proceedings in the case of Miscellaneous Application No. 665/2021 in SMW(C) No.3 of 2020 has held that in computing the period of limitation for any suit, appeal, application or proceeding, the period from 15 March, 2020 till 02 October, 2021 shall be excluded. Though not the learned DR concede the condonation of delay, the fact remains that the Hon'ble Supreme Court in the Suo Motu proceedings in the case of Miscellaneous Application No. 665/2021 in SMW(C) No.3 of 2020 has held that in computing the period of limitation for any suit, appeal, application or proceeding, the period from 15 March, 2020 till 02 October, 2021 shall be excluded. We, therefore, proceed to hear and decide the appeal on merits.

Brief facts of the case are that the assessee is a company and engaged in the business of generation of power and other infrastructure activities related to business of generation of power from renewable sources. For the assessment year 2016-17, the assessee filed its return of income on 30/11/2016 declaring loss of Rs. 19,03,92,200/- under the normal provisions of the Act and a Book Loss of Rs. 12,71,54,687/- under section 115JB of the of the Income tax Act, 1961 (“the Act”). Learned Assessing Officer completed the assessment under Section 143(3) of the Act by way of order dated 25/12/2018, making certain additions on account of disallowance u/s. 14A read with Rule 8D of the Income Tax Rules (“the Rules”) towards the expenditure incurred in relation to

Subsequently, Ld. PCIT on a perusal of the assessment record felt that the assessment order is erroneous and prejudicial to the interest of justice and, therefore, issued a notice 10/02/2021 under Section 263 of the Act proposing revision of order dated 25/12/2018 passed by the learned Assessing Officer under Section 143(3) of the Act. After considering the submission made by the assessee, Ld. PCIT passed an order dated 30/03/2021 under Section 263 of the Act directing the learned Assessing Officer to revise the income of the assessee and passed an order under Section 143(3) of the Act after allowing an opportunity of being heard to the assessee. According to the Ld. PCIT, the learned Assessing Officer failed to cause proper verification in respect of (i) disallowance under section 14A of the Act, (ii) disallowance under section 36(1)(iii) of the Act and (iii) deduction under section 57(iii) of the Act. Aggrieved by such an action of the Ld.PCIT, assessee preferred this appeal before us.

It is argued on behalf of the assessee that the learned Assessing Officer made enquiries in respect of the disallowance under section 14A of the Act read with Rule 8D of the Rules and also made an addition on that score. Learned AR further submitted that learned Assessing Officer made sufficient enquiries in respect of the interest expenditure claimed by the assessee which was invested in equity shares of its subsidiary company and it is only after considering the contentions of the assessee, learned Assessing Officer did not proceed to make any addition. Insofar as the third count, namely, deduction under section 57(iii) of the Act is concerned, according to the learned AR, the relevant expenditure if not

Per contra, learned DR submitted that the sufficiency of enquiry by the learned Assessing Officer is in question and merely because certain information is called for, it does not mean that the learned Assessing Officer adverted to such an aspect before finalising the assessment. He accordingly justifies the impugned order.

We have gone through the record in the light of the submissions made on either side. Coming to the first aspect which prompted the Ld. PCIT to take up the revision relates to the disallowance under section 14A of the Act read with Rule 8D of the Rules according to the Ld. PCIT, though the learned Assessing Officer made disallowance of administrative expenses on the average value of investment failed to disallow proportionate interest.

It could be seen from the assessment order that the learned Assessing Officer delved into the aspect of 14A of the Act read with Rule 8D of the Rules and while observing that the expenditure incurred in relation to income which does not form part of the total income shall be disallowed, had taken a conscious decision to disallow the administrative expenses. Assessment order reveals that the learned Assessing Officer

The second aspect of disallowance under section 36(1)(iii) of the Act, adverted to by the Ld. PCIT relates to the interest expense in respect of the amount borrowed and invested in the equity shares of subsidiary company. It could be seen from the Annexure to the notice under section 142(1) of the Act, vide points No. 8 & 9, the learned Assessing Officer sought the details of investment shown in the balance sheet viz-a-viz the loans and advances, and interest thereon. Vide point No. 10, learned Assessing Officer required the details of loans squared up during the year under consideration along with sources for the same. Assessee furnished all these details vide submissions dated 20/12/2018 and submitted that the company is in the business of power generation and distribution and also made investments/loans/advances in subsidiaries/associate companies which engaged in the same line of business activity. Assessee further submitted that as a holding company, assessee has significant interest in the business of the subsidiary companies and to further such business interests, the investments were made. Assessee also furnished the details of the investments.

When once the learned Assessing Officer specifically requires the assessee to furnish the details of the investments shown in the balance sheet, loans/advances and interests charged thereon along with the details of the loans squared up during the year under consideration along with sources for the same, there is no presumption that the learned

Lastly, the subject matter of the third objection is relating to the deduction under section 57(iii) of the Act. According to the Ld. PCIT, the assessee failed to prove the nexus between the interest income and the expenditure incurred. Assessee claimed expenditure under section 57(iii) of the Act i.e., interest on term loan from IDFC Anthiyur unit from out of the other sources i.e., interest received on FDs, ICDs & CCDs as against the correct claim of such interest expenditure against business income. According to the Ld. PCIT, such expenditure, therefore, cannot be allowed the income assessed under the head ‘income from other sources’.

Genuineness of the incurring the interest expenditure is not in dispute and also it is not in dispute that the amount borrowed was not utilised for the business purpose. Submission of the learned AR that the relevant expenditure if not allowable under section 57(iii) of the Act, the same has to be allowed under section 36(1)(iii) of the Act goes unchallenged and unimpeached, and therefore, there is no prejudicial to the interest of Revenue. In these circumstances, we agree with the submission of the learned AR that the twin conditions to invoke the jurisdiction to revise the assessment order under section 263 of the Act, namely, both the order being erroneous and also prejudicial to the interest of Revenue, as observed by the Hon'ble Apex Court in the case of Malabar

In this set of facts and circumstances, we are of the considered opinion that out of three grounds picked up for revision of the assessment order by the Ld. PCIT under section 263 of the Act, there was requisite enquiry by the learned Assessing Officer in respect of two grounds, whereas in respect of the third one though the order seems to be erroneous, there is no prejudice caused to the interest of Revenue. We, therefore, hold that the order under section 263 of the Act cannot be sustained and consequently, quash the same.

In the result, appeal of the assessee is allowed.