INDIA INFRASTRUCTURE DEVELOPERS LTD,MUMBAI vs. ADDL CIT RG 2(2), MUMBAI

When the appeal was called for hearing no one was present on behalf of the assessee to represent the case. Even, the assessee has not sought adjournment by filing any application. Since, the appeal is very old pertaining to the year 2011, we proceed to dispose off the 2 India Infrastructure Developers Ltd. appeal ex–parte qua the assessee after hearing the learned Departmental Representative and on the basis of material on record.

In ground no.1, the assessee has challenged disallowance of expenditure under section 14A of the Income Tax Act, 1961 (for short “the Act”).

Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has shown investment in tax free bond, mutual fund and shares of companies aggregating to ` 56,71,71,636, called upon the assessee to explain why expenses should not be disallowed under section 14A of the Income Tax Act, 1961 (for short “the Act”) r/w rule 8D of Income Tax Rules, 1962. In response, though, it was submitted by the assessee that in the year under consideration it had no exempt income, hence, no disallowance under section 14A of the Act can be made, however, the Assessing Officer rejecting the submissions of the assessee proceeded to disallow an amount of ` 10,94,267 by applying rule 8D(2)(iii) of the Rules.

Though, the assessee challenged the disallowance in appeal, however, the learned Commissioner (Appeals) sustained the disallowance.

We have heard the learned Departmental Representative and perused materials on record. As could be seen from the facts on 3 India Infrastructure Developers Ltd. record, from the stage of assessment proceedings itself it is the consistent claim of the assessee that during the relevant previous year it has not earned any exempt income. The aforesaid claimed of the assessee has not been controverted by the Departmental Authorities. That being the case, no disallowance under section 14A of the Act can be made as per settled legal principle. Moreover, the Assessing Officer has made disallowance under section 14A of the Act by applying the methodology of rule 8D(2) of the Rules. Now, it is well settled that provisions of rule 8D are prospective and applicable only from the assessment year 2008–09. In view of the aforesaid, the disallowance made under rule 8D r/w section 14A is not sustainable. Hence, deleted. This ground is allowed.

In ground no.2, the assessee has challenged the decision of the learned Commissioner (Appeals) in holding that long term capital gain arising on sale of share has to be treated as income at the hands of Larsen & Toubro Ltd.

Brief facts are, the assessee, earlier known as “L&T Power Investment Ltd.” was holding shares of a wholly owned subsidiary Raykal Aluminium Co. P. Ltd. During the relevant previous year, assessee sold the shares held by it and declared long term capital gain of ` 34,98,92,657 from sale of such shares. However, it claimed deduction of the entire capital gain under section 54EC of the Income

Though, the assessee challenged the aforesaid decision of the Assessing Officer before the learned Commissioner (Appeals), however, it failed in its attempt to get any relief from the first appellate authority on the issue.

While confirming the decision of the Assessing Officer, the learned Commissioner (Appeals) also took note of the fact that the Dispute Resolution Panel (DRP) has also upheld the addition of capital gain at the hands of Larsen & Toubro Ltd.

We have heard the learned Departmental Representative and perused materials on record. Undisputedly, the long term capital gain offered by the assessee from sale of shares of Raykal Aluminum Co. Pvt. Ltd., was ultimately assessed at the hands of Larsen & Toubro Ltd. by excluding it from the income of the assessee. As could be seen from the facts on record, the DRP–II, Mumbai, while deciding the objections raised by Larsen & Toubro Ltd. on the issue of addition of long term capital gain on sale of shares at its hands, has upheld the addition. Further, it is seen from record, against the aforesaid decision of the DRP, Larsen & Toubro Ltd. appears to have filed an appeal before the Tribunal which is stated to be pending. Be that as it may, considering the fact that assessability of long term capital gain from sale of shares at the hands of the assessee, ultimately, hinges on the decision to be taken by the Tribunal in the appeal filed by the Larsen & Toubro Ltd. challenging the addition of capital gain arising from sale of very same shares, we are inclined to restore the issue to the file of the Assessing Officer for de novo adjudication keeping in view the decision of the Tribunal in the appeal preferred by Larsen & Toubro Ltd. against the directions of the DRP on the issue. Of–course, the Assessing Officer must allow reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes.

In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 29.06.2018