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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
O R D E R PER RAMLAL NEGI, JM: These appeals have been filed by the revenue against two orders dated 10.10.2017 passed by the Commissioner of Income Tax(Appeals)- 51 in respect of two assessee, pertaining to the assessment year 2014-15, whereby the Ld. CIT(A) allowed both the appeals filed by the assessee against assessment orders dated 20.04.2015. Since the facts of the case and the issues involved are identical in both the appeals. The same were clubbed heard together and are being disposed of by this common and consolidated order for the sake of convenience.
I.T.A. No.119 & 122/Mum/2018
The assessee a Limited company engaged in the business of manufacturing and sale of electricity generated through wind turbine generators, filed its return of income for the assessment year under consideration declaring nil income after claiming deduction under chapter VIA amounting to Rs. 7,78,31,183/- and book profit u/s. 115JB at Rs. 5,29,56,552/- . The return was processed u/s. 143(1). Subsequently, the case was selected for scrutiny and the AO issued notice u/s. 143(2) and 142(1) of the Act. In response thereof the Authorised Representative of the assessee appeared before the AO and filed the details called for. The AO completed the assessment order u/s. 143(3) determining the total income of the assessee at Rs. 6,99,81,250/- under the normal provisions of the Act of Rs. 8,32,58,104/- under 115JB inter alia making disallowance of Rs. 3,03,01,552/- under section 14A r.w.r. 8D of the Income Tax (rules) and disallowance of Rs. 3,96,79,698/- u/s. 57 of the Act. The assessee challenge assessment order before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee set aside the assessment order and deleted the aforesaid additions made by the AO. Against the said order the revenue is in appeal before the Tribunal. The revenue has challenged the impugned order passed by the Ld. CIT(A) by raising the following effective grounds:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.3,03,01,552/- u/s 14A of the IT Act rwr 8D". 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the convertible debenture of Rs50,00,00, OOO/- should not be considered while computing disallowance u/s 14A rwr 8D(ii) relying on the decision of Wind World Wind Farm(India) in AY 2012-13 & 2013-14, even though the revenue has not accepted the above decision". 3. "Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to delete the disallowance u/s 14A rwr 8D(2)(ii) on Rs & 122/Mum/2018 9,10,00,000/- relying upon the decision in the case of Reliance utilities and HDFC Bank even when the assessee could not submit the fund flow so as to establish as to how the investments have been made from its own surplus funds?" 4. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance u/s 14A rwr 8D(iii) of Rs 29,55,000/- by holding that no exempt income has been earned on the investment, which is in contravention to the CBDT circular no 5/2014 dated 11.02.2014". 5. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not adjudicating on the issue of re-computation of book profit as this issue is squarely covered in the favour of revenue by the order of ITAT in the case of/Viraj Profiles Ltd. (2016) 156 ITD 72”.
6. On the facts and in the circumstances of the case and we law, the Ld. CIT(A) erred in allowing interest expenditure of Rs3,96,79,698/- against interest income of Rs2,00,00,000/- holding that the same is inextricably linked to interest expenditure, even though the assessee failed to establish it to the satisfaction of the AO".
At the outset the Ld. Counsel for the assessee submitted that the issue pertaining to the disallowance u/s. 14A r.w.r. 8D of the rules has been dealt with by the ITAT, Mumbai in the case of DCIT v. Wind World Wind Farms (Krishna) Ltd. in for the assessment year 2014-15 and the Tribunal upheld the similar finding given by the Ld. CIT(A) in the similar set of facts and deleted the addition made on account of disallowance u/s. 14A r.w.r. 8D by following the ratio of law laid down by the Hon’ble Bombay High Court, Nagpur Bench in the case of Principal CIT v. Ballarpur Industries Limited in Income Tax Appeal no. 51 of 2016 and the Hon’ble Delhi High Court in the case of Ceminvest Limited v. CIT (2015) 378 ITR 33 (Del.). The Ld. Counsel further pointed out that since this ground of appeal
is covered in favour of the assessee by the decision of the ITAT, there is no merit in the contention of the revenue.
4. On the other hand the Ld. Departmental Representative(DR) relying on the assessment order submitted that since the assessee I.T.A. No.119 & 122/Mum/2018 had made huge investment for earning exempt income during the year relevant to the assessment year under consideration, the AO has rightly made disallowance u/s. 14A r.w.r. 8D. Since the disallowance has been made in accordance with the provisions of the Act, the Ld. CIT(A) ought to have confirmed the same.
We have heard rival submission and also perused the material on record including the decision relied upon by the assessee. We notice that in the case of DCIT vs. Wind World Wind Farms (Krishna) Ltd. (supra), the coordinate bench has decided the identical issue in favour of the assessee. The relevant paras of the order of the coordinate Bench read as under:- 3. The learned Counsel for the assessee stated that there is no exempt income claimed by assessee in the return of income and once there is no exempt income, no disallowance of expenses can be made by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. For this the learned Counsel for the assessee relied on the decision of Hon’ble Bombay High Court, Nagpur Bench in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered and finally following the judgment of Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held as under: - “On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual & 122/Mum/2018 income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.” When this was confronted to the learned Departmental Representative he fairly conceded.
After hearing rival contentions and going through the facts and circumstances of the case, admitted position on facts is that there is no exempt income claimed by assessee. This fact is noted by the AO on the very first of the assessment order para 3 stating, “the fact of the case is that assessee has not claimed any exempt income” Once there is no exempt income, the issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Ballarpur Industries Limited (supra). Respectfully following the Hon’ble Jurisdictional High Court, I confirm the order of CIT(A) deleting the disallowance.
The facts of the case and the issue involve in the present case is identical to the fact and the issue involved in the case of DCIT vs. Wind World Farms (Krishna) Ltd., discussed above. Since the coordinate Bench has decided the identical issue in favour of the assessee and since the decision of the Ld. CIT (A) is in accordance with the decision of the coordinate Bench, we have no reason to interfere with the findings of the Ld. CIT(A). Hence, we uphold the findings of the Ld. CIT(A) and dismiss ground no. 1 to 4 of the revenue appeals.
Vide Ground No. 5, the revenue has challenged the action of the Ld. CIT(A) in not adjudicating on the issue of re-computing of book profit on the ground that this issue is covered in favour of the revenue by the order of ITAT in the case of Viraj Profiles Ltd., (2016) 156 ITD 72. The Ld. DR submitted that since the findings of the Ld. CIT(A) on this point are contrary to the findings of ITAT in the case of Viraj Profiles Ltd., (supra), the impugned order is liable to be set aside.
I.T.A. No.119 & 122/Mum/2018 8 On the other hand the Ld. Counsel for the assessee submitted that since no disallowance was required to be made u/s. 14A r.w.r. 8D in the present case the Ld. CIT(A) has rightly held that the this ground has become infructuous. Since we have upheld the findings of the Ld. CIT(A) and deleted the addition made on account of disallowance u/s. 14A r.w.r. 8D, there is no need to decide this issue as this issue has become infructuous. Hence this ground of appeal by the revenue is dismissed. 9.Vide Ground No. 6, the revenue has challenged the action of the Ld. CIT(A) in allowing interest expenditure of Rs. 3,96,79,698/- against the interest income of Rs. 2,00,00,000/- before us. The Ld. DR submitted that the Ld. CIT(A) has wrongly allowed the interest expenditure as the assessee had borrowed the term loan for the purpose of making investment in convertible debentures of fellow subsidiary namely Wind World Farms (Krishna) Ltd., since these expenses are made for the payment of interest of the term loan and further it is a capital expenditure this same cannot be allowed u/s. 57 of the Act. Hence the findings of the Ld. CIT(A) is erroneously liable to be set aside.
10. On the other hand the Ld. Counsel for the assessee submitted that findings of the Ld. CIT(A) are based on the decision of Hon’ble Supreme Court in the case of Bokaro Steel Ltd., in which the Hon’ble Supreme Court as held that if the interest earned inextricably linked to the interest expenditure, a set off should be allowed of the interest expenditure against the interest income while computing income under the head income from other sources. Further the Hon’ble Supreme Court in the case of S.A Builders has held that no part of the interest expenditure of borrowed capital can be disallowed after the amount has been advanced to a related concern on account of commercial expediency. Since the findings of the Ld. CIT(A) are based on the principles of law laid down by the Hon’ble Supreme Court in & 122/Mum/2018 the aforesaid cases, there is no infirmity in the order of the Ld. CIT(A) to interfere with.
11. We have perused the material on record including the cases relied upon by the party in the light of rival contentions. We notice that the Ld. CIT(A) has decided this issue by following the decisions of the Hon’ble Supreme Court in the case of Bokaro Steel Ltd., 336 ITR 315 (SC) and the S.A Builders Ltd. 288 ITR 1 and also the decision of Hon’ble Supreme Court Radhaswami Satsang 193 ITR 321. The relevant paras of the order of the Ld. CIT(A) are as under:- 7.1 I have considered the facts of the case, contentions of the assessee as also the order of the AO. It is observed that the assessee had availed term loan of Rs 45 crores from Oriental Bank of Commerce for the purpose of making investments in convertible debentures of Wind World Wind Farms (Krishna) Ltd. which in turn will promote a new SPV company where a new wind power project will be set up. On account of this loan availed from Oriental Bank of Commerce, the assessee has incurred interest expenditure of Rs 3,96,79,6987- and on the said investments in convertible debentures of Wind World Wind Farms (Krishna) Ltd., it has earned interest income of Rs 2,00,00,0007-. Thus, the interest earned of Rs 2,00,00,0007- is inextricably linked to the interest expenditure incurred by the assessee of Rs 3,96,79,6987-. The Hon'ble Supreme Court in the case of Bokaro Steels Ltd (236 ITR 315) (SC) has held that if the interest earned is inextricably linked to the interest expenditure, a set off should be allowed of the interest expenditure against the interest income while computing the income under the head," income from other sources". 7.2 Further, the Hon'ble Supreme Court in the case of S A Builders Ltd (288 ITR 1) has held that no part of interest expenditure on borrowed capital can be disallowed if the amount has been advanced to a related concern on account of commercial expediency. As noted above, the assessee had availed term loan of Rs 45 crores from Oriental Bank of Commerce for the purpose of making investments in convertible debentures of Wind World Wind Farms (Krishna) Ltd. which in turn will promote a new SPV company where a new wind power project will be set up. It is also noted that the assessee and Wind World Wind Farms (Krishna) Ltd., are all in the same line of business & 122/Mum/2018 of generation of electricity through wind energy. Therefore, on the ground of commercial expediency also, the said interest expenditure of Rs 3,96,79,6987- is allowable as a deduction. 7.3 Moreover, it is also observed that this issue has been duly examined in the assessment orders passed u7s 143(3) r.w.s. 153A for AY 2011-12 to 2013-14 and also in earlier years, and no disallowance has been made by the AO. The Hon'ble Supreme Court in the case of Radha Soami Satsang (193 ITR 321) has held that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
We notice that in the present case the assessee company has borrowed the term loan in order to make investment in convertible debentures of a related entity which in turn was to promote a new SPV Company for setting up of new wind power project. Under these circumstances the commercial expediency cannot be ruled out.
On the other hand the AO has not pointed out any evidence to show that the case of the assessee is not covered by the law laid down by the Hon’ble Supreme Court in the cases discussed above. Hence in our considered view the findings of the Ld. CIT(A) are in accordance with law laid down by the Hon’ble Supreme Court. We accordingly uphold the findings of the Ld. CIT(A) and dismissed this ground of appeal
of the revenue. The facts and the issues involved in the present case are identical to the facts and issues involved in the case .
2. The revenue has challenged the order passed by the Ld. CIT(A) on the following grounds:-
I.T.A. No.119 & 122/Mum/2018
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.5,11,54,875/- u/s 24A of the IT Act rwr 8D 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the convertible debenture of Rs95,00,00,000/- should not be considered while computing disallowance u/s 14A rwr 8D(ii) relying on the decision of Wind World Wind Farm(India) in AY 2012-13 & 2013-14, even though the revenue has not accepted the above decision". 3. "Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was Justified in directing the AO to delete the disallowance u/s 14A on Rs2,00,00,000/- relying upon the decision in the case of Reliance utilities and HDFC Bank even when the assesses could not submit the fund flow so as to establish as to how the investments have been made from its own surplus funds?" 4. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance u/s 14A rwr 8D(iii) of Rs48,50,000/- by holding that no exempt income has been earned on the investment, which is in contravention to the CBDT circular no 5/2014 dated 11.02.2014". 5. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not adjudicating the issue of re-computation of book profit as this issue is squarely covered in the favour of revenue by the order of lTAT in the case of Viraj Profiles Ltd. (2016) 156 ITD 72". 6, "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing interest expenditure of Rs8,09,89,163/- against interest income of Rs3,80,00,000/- holding that the same is inextricably linked to interest expenditure even though the assessee failed to establish it to the satisfaction of the AO" 3. Since the facts and the issues involved in the present case are identical to the facts of the case and the issues involved in the case discussed above, except the amount of disallowance u/s. 14A and the disallowance of interest u/s. 57 of the Act. Since we have dismissed the revenue appeal aforesaid, consistent with our findings we dismiss all the grounds of appeal of the revenue in this case also.