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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 17.11.2016 Date of Order – 30.11.2016 2 JSW Energy Limited O R D E R PER SAKTIJIT DEY, J.M.
These cross appeals are directed against the order dated 18th November 2014, passed by the learned Commissioner (Appeals)–47, Mumbai, for the assessment year 2007–08.
./2015 – Assessee’s Appeal
Ground no.1, relates to the decision of the learned Commissioner (Appeals) in treating the interest income of ` 2,35,87,315, as income from other sources and consequent disallowance of deduction claimed under section 80IA of the Act on the said income.
Brief facts are, assessee originally had filed his return of income on 30th October 2007, declaring income of ` 46,40,42,297, after claiming deduction under section 80IA for an amount of ` 258,79,40,728. Assessment in case of assessee was completed under section 143(3) on 31st December 2009, determining total income at ` 58,11,77,840 under the normal provisions and book profit of ` 343,61,92,406 under section 115JB. While doing so, the Assessing Officer treated the interest income of ` 2.35 crore as income from other sources thereby disallowing assessee’s claim under section 80IA on such income. Further, the Assessing Officer also noticed that during the relevant previous year, assessee, though, had earned exempt
3 JSW Energy Limited income, however, it has not disallowed any expenditure relatable to earning of such income as required in section 14A. He, therefore, worked out the disallowance under section 14A and accordingly made adjustment to the book profit under section 115JB. Against the assessment order passed under section 143(3), assessee preferred appeal before the first appellate authority. The learned Commissioner (Appeals) disposed off the appeal granting partial relief to the assessee on disallowance made under section 14A. Against the order passed by the learned Commissioner (Appeals), both the Department and the assessee went in appeal before the Tribunal. Subsequently, on the basis of a search and seizure operation, carried out in assessee’s case on 16th March 2011, the Assessing Officer issued notice under section 153A. In pursuance to the notice so issued, assessee filed its return of income on 29th January 2011, declaring nil income under the normal provisions and book profit of ` 99,35,87,000 under section 115JB. During the pendency of the appeals arising out of original proceedings before the Tribunal, the Assessing Officer completed assessment under section 143(3) r/w section 153A of the Act by repeating the additions made in the original assessment order. Being aggrieved of the assessment order so passed, assessee again preferred appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals) disposed off the appeal of the 4 JSW Energy Limited assessee by granting partial relief. Against the aforesaid order of the learned Commissioner (Appeals), both the assessee and the Department are in appeal before us.
While the assessee is challenging the disallowance under section 80IA by treating the interest income as income from other sources as well as part confirmation of disallowance under section 14A, the Department is challenging the partial relief granted by the learned Commissioner (Appeals) with reference to disallowance made under section 14A of the Act.
The learned Authorised Representative, at the outset submitted, the cross appeals filed against the learned Commissioner (Appeals)’s order arising out of the original assessment proceedings in the meanwhile, have been disposed of by the Tribunal restoring all the issues back to the file of the Assessing Officer. He, therefore, pleaded that similar direction may be issued in the present appeal also.
Learned Departmental Representative agreed that the issues are covered by the decision of the Tribunal while deciding the appeal arising out of the original assessment proceedings.
We have considered the submissions of the parties and perused the material on record. It is evident on record that in the impugned
5 JSW Energy Limited assessment proceedings, the Assessing Officer has merely repeated the additions made by the Assessing Officer in original assessment proceedings and has not made any fresh additions. The dispute arising for consideration in the present appeal is in relation to disallowance of deduction claimed under section 80IA on the interest income of ` 2,35,87,315 and disallowance made under section 14A. As far as the claim of deduction under section 80IA on the interest income is concerned, the Assessing Officer disallowed the deduction claimed by treating the interest income as income from other sources in the original assessment proceedings. The learned Commissioner (Appeals) also confirmed the same. However, the Tribunal while deciding assessee’s appeal in order dated 7th October 2016 in ITA no.462/Mum. /2014, restored the issue back to the file of the Assessing Officer with the following observations.
“5. The ld. AR relied on the decision of Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v/s CIT, 343 ITR 89 (SC), and contended that only net interest should be excluded from eligible profit and not the gross interest income. We have carefully gone through the decision of Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd., (supra) wherein it was held that while computing deduction u/s.80fllFIC, net interest income which has been included in the profit of the business of assessee as computed under the head "profits and gains of business and profession" is to be excluded and not the gross interest income. Respectfully following the proposition laid down by the Hon'ble Supreme Court, we direct the A.O. to examine the nature of interest income so received by the assessee, whether it is "income from business and profession" or "income from other sources". The proposition laid down by the Hon'ble Supreme Court in case of ACG Associated Capsules (supra) is applicable only where interest income is assessed as 6 JSW Energy Limited
'business income'. However, where interest income is assessed as 'income from other sources', the benefit of netting can be given only with respect to the interest expenditure which has been incurred for earning the interest income which has been included in the profit of business of assessee. Accordingly, we restore the matter back to the file of the AO for deciding afresh in terms of our above discussion. We direct accordingly.”
Therefore, consistent with the view of the Tribunal on identical issue arising out of original assessment proceedings, we restore the issue back to the file of the Assessing Officer for deciding afresh in terms of the directions of the Tribunal as referred to above.
As far as the issue of disallowance under section 14A and consequent adjustment to book profit under section 115JB, which have been agitated in the cross appeals, both by the assessee and the Department, we find that these issues are also squarely covered by the decision of the Tribunal arising out of the original assessment proceedings. On a perusal of the order dated 7th October 2016, in ITA no.462/Mum./2014 and ITA no.981/Mum./2014, we find that the Tribunal has restored back the issues to the file of the Assessing Officer for fresh adjudication with the following observations:–
"9. We have considered the rival contentions and also deliberated on the judicial pronouncement referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us. From the record we find that the A.O. has disallowed direct expenditure of Rs.6,37,23,291/- mainly on account of interest on funds invested in tax free securities. However, major investment was strategic. In view of the decision of Hon‟ble Delhi High Court in the case of Oriental Structure Engineers P. Ltd. (supra) and Mumbai Bench Tribunal in 7 JSW Energy Limited the case of Garware Wall Ropes Limited (ITA No. 5408/Mum/2012 dated 15.01.2014) and J. M. Financial Ltd. (in 2012), no disallowance of interest could be made in respect of investment made in group concerns. Accordingly, we direct the A.O. to exclude the investment made in group concerns while computing the disallowance of interest. We further direct the A.O. to verify the interest free funds available with the assessee for making investment. As per the verdict of Hon'ble jurisdictional High Court in the case of CIT vs. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), CIT vs. HDFC Bank 366 ITR 505 (Bom) and decision of Mumbai Tribunal in the case of ACIT Vs Prakash I Shah (ITA No. 6349/Mum/2011), no disallowance of interest is warranted when assessee is having sufficient own funds for making investment. The A.O. is directed to verify the availability of interest free funds with the assessee for investment.
10. In view of the above, the disallowance made u/s.14A is restored back to the file of the A.O. for re-computing the disallowance of interest in terms of the above discussions. Further in view of the decision of Hon‟ble Delhi High Court in the case of ACB India Ltd. vs. ACIT 374 ITR 108, we direct the A.O. to consider only those investment on which dividend is received while computing disallowance u/s.14A. Similar view has been taken by Hon‟ble Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd. 272 CTR 262 (Guj) and by Hon‟ble Punjab & Haryana High Court in the case of CIT v. Lakhani Marketing Incl. [2014] 272 CTR 265(P&H). The A.O. is accordingly directed to consider these judicial pronouncements while working out disallowance u/s. 14A 11. On the other hand, the ld. DR invited our attention to the order of the tribunal in the assessee‟s own case for A.Y. 2006-07, wherein issue with regard to disallowance u/s. 14A was restored back to the file of the A.O.
Learned DR also objected to the disallowance deleted by CIT(A) by estimating administrative expenditure at Rs. 3.00 lacs per month and contended that without giving any cogent reason, the CIT(A) had reduced disallowance of Rs.2,67,57,476/- to Rs.36.00 lacs. As per learned DR, looking to the dividend income of assessee amounting to Rs. 28.18 crores, the disallowance made by the AO was perfectly justified and the CIT(A) has reduced the same considerably without giving any justification.
We have considered rival contentions and also gone through the order of the Tribunal, in assessee‟s own case for the assessment year 2006-07 wherein Tribunal held that Rule 8D is not 8 JSW Energy Limited applicable prior to the assessment year 2008-2009. Accordingly, the matter was restored back to the file of AO for deciding afresh as per the directions given therein. The relevant assessment year under consideration is 2007-08, Rule 8D is also not applicable to this assessment year in terms of the decision of Bombay High Court in case of Godrej & Boyce Manufacturing Company 328 ITR 81. Respectfully following the decision of the tribunal in assessee‟s own case, having similar facts, we restore the matter back to the file of the AO for computing afresh disallowance warranted under Section 14A keeping in view our above observation. We direct accordingly.
Assessee has also taken ground for addition of disallowance made under Section 14A while computing book profit under Section 115JB. As we have already restored a ground with regard to computation of disallowance / addition made under Section 14A to the file of AO, in the interest of justice, this ground of assessee’s appeal is also restored back to the file of the AO for deciding afresh after re-computing the disallowance to be made under Section 14A. We direct accordingly.
In the result, both the appeals of the Revenue and the assessee are allowed in part in terms indicated hereinabove.”
Thus, consistent with the view expressed by the Tribunal as aforesaid in appeals arising out of original assessment proceedings, we restore the issues to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee.
In the result, both the appeals are partly allowed for statistical purposes. Order pronounced in the open Court on 30.11.2016