DCIT CEN CIR 8(3) ERSTWHILE DCIT CC 46, MUMBAI vs. JSW ENERGY LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य, राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार/ PER Rajendra A.M.- अनुसार Challenging the order,dated 17/03/2015,of the CIT (A)-47,Mumbai,the Assessing Officer(AO) has filed the present appeal.Assessee-company, engaged in the business of generation of power and operation and maintenance of power plants,filed its return of income on 30/09/2009, declar -ing income of Rs. 3.17 crores.Taxable income was related u/s.115 JB at Rs.6,66,76, 27,404/-.A search and seizure action was carried out under section 132 of the Act in JSW group of cases on 16/03/2011.During the course of search books of accounts and documents belonging to the assessee were seized.Therefore notice under section 153A was issue to it on 24/10/2011.In response to the said notice, it filed return of income on 29/01/2011 declaring total income of Rs.3.17 crores and of Rs. 666.76 crores u/s.115JB.

2.First ground of appeal is about deleting the addition made on account of capitalisation of Rs. 68.15 lakhs in respect of contract awarded to Gremach Infrastructure Equipments and Projects Ltd.(GIEPL).The AO observed that during the AY.2008-09,the assessee had claimed to have engaged the services of GEIPL for exhibiting part of its projects, that it had been held during that year that no work had been done by GEIPL in respect of the contract awarded,that no work could be executed,that the payment made by the assessee could not be considered for purpose of business,that capital expenditure of Rs. 68.15 lakhs claimed by the assessee for the year under consideration could not be allowed.

1335/M/15 JSW Energy Ltd.

3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that it had neither incurred not claim any expenditure for the year under consideration,that the AO was not justified in disallowing the same,that expen -diture was incurred by a subsidiary company of the assessee which amalgamated with it with effect from 01/04/2010. He referred to his order for the AY. 2008- 09 and stated that the matter pertained to capitalisation of an expenditure with regard to payment made to GEIPL by JSW Energy(Ratnagiri)Ltd.(JSWERL),that it was a subsidiary of the assessee and the amount in question was included in the capital work in progress,that JS got merged with the assessee with effect from 01/04/2010 vide an scheme of arrangement approved by honorable Bombay High Court order dated 24/09/2010 that during the search and seizure proceedings carried out in the case of assessee group certain papers were found about the contract given to GEIPL, that the AO of that company had disallowed a sum of Rs. 33.84 lakhs for the AY. 2008-09 and balance amount of Rs. 68.15 lakhs for the AY. 2009-10 claim under the head capital expenditure.

4.Before us,the Departmental Representative (DR) supported the order of the AO. The Authorised Representative (AR) stated that assessee had not claimed any expenditure in its books of accounts, that disputed amount was disallowed in the case of JSWERL, that during not made by an assessee could not be disallowed.

5.We have heard the rival submissions and perused the material before us.We find that the assessee had not claimed the expenditure in question in its books of accounts for the year under appeal.For disallowing any expense,the AO should first prove the incurring and claiming of of the said expenditure in the regular books of accounts.But, without establishing the basic fact that the assessee had claimed the expenditure,the AO had made the disallowance.The expenditure was incurred by an erstwhile entity namely JSWERL and certain discrepancies were noticed about the transaction.So,if any disallowance was to be made,it should have been in the hands of that assessee or it should have been in the case of successor of JSWERL.The FAA has given a categorical finding of fact that before the amalgamation with JSWERL,the assessee had no connection with that entity,that expenditure was claimed by that company and was disallowed by the AO of that company while completing the assessment for the AY.s 2008-09 and 2009-10,that the AO had wrongly disallowed the expenditure in the hands of the assessee.Thus, there was no justification for making any addition in the case of the assessee.In our opinion,there is no legal or factual 2

1335/M/15 JSW Energy Ltd. infirmity in the order of the FAA.So,confirming his order,we decide first ground of appeal against the AO.

6.Second ground pertains to restricting the disallowance,made u/s.14A of the Act,to Rs.13.59 lakhs.During the assessment proceedings, the AO found that the assessee had not made any disallowance u/s.14A of the Act in the original return of income,that in the return filed in response to notice u/s.153A,it had disallowed Rs.13.59 lakhs without applying Rule 8D of the Rules.However, the AO enhanced the disallowance Rs.59,34,74, 860/–.

7.During the appellate proceedings before the FAA,the assessee argued that no assessment was completed u/s.143 (3) for the year under consideration, that the AO had not given any finding as to how the amount disallowed by the assessee was not acceptable to him while applying provisions of section 14A read with rule 8D, that it had submitted the complete working of the basis of amount disallowed under section 14A along with supporting documents/evidences, that the AO without referring to the details applied Rule 8D that satisfaction of the AO is to the incorrect claim made by the assessee in this regard was precondition for invoking the applica -bility of rule 8D.The assessee made a reference to certain case-laws and argued that the direct interest expenses incurred by the assessee had already been disallowed by the assessee in its return of income, that no further interest disallowance could be made on account of any other indirect interest expenditure. After considering the assessment order and the submissions of the assessee, the FAA held that the arguments advanced by it regarding to non-applicability of section 14 A read with rule 8D on the ground of strategic investment in subsidiaries were advanced in appeal proceedings in AY. 2008-09 under identical facts and circumstances and were found to be not acceptable, that if the direct interest expenditure with regard to investment was identifiable there was no reason to invoke Rule 8D(ii) for proportionate disallowance if there was no evidence that mix funds had been utilised for investments,that the submission of the assessee was considered for the AY. 2008-09 and a finding was given that the investments had not been made from mixed funds and that there was no indirect interest attributable to investments,that no disallowance u/s.14 A could be made in the facts of a case where no exempt income was received and claimed by an assessee, that from the financial statements of the assessee for the year ending on 31/03/2009 the assessee had not received any dividend for other income which could be claimed as exempt under any provision of the act, that no disallowance was required to be made during the year under appeal, that the assessee itself 3

1335/M/15 JSW Energy Ltd. had made a disallowance of Rs. 13.59 lakhs in the return filed by it. He directed the AO to restrict the disallowance to the sum identified and disallowed by the assessee itself.

8.The DR relied upon order of the view and the AR supported the order of the FAA.We have heard the rival submissions and perused the available material. We find that the assessee had not earned any exempt income for the year under consideration, that it had made the disallowance of Rs.13.59 lakhs on its own,while filing the return of income,that the AO had made for the disallowance under the heads interest expenditure and administrative expenditure,that the AO had not given any reason for rejecting the claim made by the assessee.It is a settled principle that disallowance u/s.14 A could be made,only if the assessee claims expenditure against the exempt income.Therefore,we do not see any infirmity in the order of the FAA.Confirming the same,we decide second ground against the AO.