DY. COMMISSIONER OF INCOME TAX , CIRCLE-2(1), HYDERABAD vs. IND BARATH POWER GENCOM LIMITED, HYDERABAD

We notice at the outset that these Revenue’s appeals suffer from delay of seven days stated to be attributable to the reasons mentioned in the petition/affidavit and on account of no objection from assessee’s side. This delay stands condoned therefore.

The Revenue’s sole substantive grievance in first and foremost AY.2014-15; appeal in ITA No.921/Hyd/2019 and former identical grievance canvassed in the latter twin assessment years’ appeals herein challenges correctness of the CIT(A)’s action deleting Section 36(1)(iii) involving varying sums. We note that the CIT(A)’s identical detailed discussion deleting the impugned interest disallowance in lead AY.2014- 15 reads as follows:

Learned CIT-DR vehemently contended during the course of hearing that the Assessing Officer had rightly disallowed the impugned interest sums after having found the assessee to have made interest free advances to its sister concerns without involving any “commercial expediency”. The assessee’s case on the other hand places strong reliance on the CIT(A)’s foregoing detailed discussion deleting the impugned disallowance.

We have considered rival contentions. It is made clear that there is no dispute at all about the fact that the assessee had indeed advanced its interest free loans to its sister concerns. Learned counsel had sought to highlight before us that not only the CIT(A)’s findings take into consideration, the relevant judicial precedents (supra), but also the fact that the assessee’s sister concerns are engaged in the similar business. We find no reason to accept either parties’ foregoing submissions in entirety. There could be hardly any issue about the settled legal proposition that interest free advances made to sister concerns are indeed allowable as a business deduction provided the same involve the element of commercial expediency. We however, note that there is neither any cogent supportive material filed by the assessee either before the Assessing Officer the same or the CIT(A) has examined this aspect as he has merely followed the relevant case law (supra) without adverting to the relevant facts. That being the case, we deem it appropriate to restore the instant first and foremost issue raised in all the three instant Revenue’s appeals back to the Assessing Officer to examine the commercial expediency element in assessee’s interest free advances as per law within three effective opportunities of hearing in consequential proceedings. It is made clear that the assessee shall be very much at liberty to raise all factual and legal pleas; if so advised in consequential proceedings. This Revenue’s first instant grievance is allowed for statistical purposes in above terms in all these assessment years. Its appeal ITA No.921/Hyd/2019 for AY.2014-15 raising all this sole issue succeeds for statistical purposes.

The Revenue’s identical latter substantive grievance in the remaining twin appeals ITA Nos.922 & 923/Hyd/2019 for AYs.2014-15 and 2015-16 seeks to revive Section 14A r.w. Rule 8D disallowance involving varying sums. Suffice to say it has come on record that the assessee has not derived any exempt income in either of the assessment years. We note in this backdrop that their lordships in CIT Vs. Chettinad Logistics Pvt. Ltd., [80 taxmann.com 221] (Madras); , CIT Vs. Corrtech Energy Pvt. Ltd., [223 Taxman 130] (Guj); and Cheminvest Ltd., Vs. CIT (2015) [378 ITR 33] (Del) hold that Section 14A read with Rule 8D applies only in relation to an assessee’s exempt income and not otherwise. It is an admitted fact that the assessee has not derived any exempt income in the relevant previous year. We therefore sustain the order of CIT(A) under challenge for this precise reason alone. No other ground has been pressed before us. Revenue’s appeals ITA Nos.922 and 923/Hyd/2019 are treated as partly allowed for statistical purposes in foregoing terms. 7. To sum-up, Revenue’s first appeal ITA No.921/Hyd/2019 is treated as allowed for statistical purposes and the latter two appeals ITA Nos.922 & 923/Hyd/2019 are partly allowed for statistical purposes in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 21s March, 2022