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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by M/s. Andhra Pradesh Industrial Infrastructure Corporation Ltd., Hyderabad (“the assessee”), feeling aggrieved by separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), both dated 21.05.2024 for the A.Ys. 2012-13 and 2017-18. For the sake of convenience, both the appeals were heard together and consolidated order is being passed.
The assessee has raised the following grounds of appeal :
“ 1. The Orders of the lower authorities are contrary to the facts of the case and the Provisions of Law.
2. The learned Commissioner of Income Tax is not justified in sustaining the addition of Rs.2.43 crores on the ground that the prior period expenses were less provided to the extent of this amount.
3. The learned Commissioner of Income Tax should have appreciated that the in the addition of this amount of Rs.2.43 crores should have been considered Assessment for the Assessment year 2010-11 relevant to the financial year 2009-10 as the CAG has reported that the interest relating to the financial year 2009-10 was less provided while finalizing the accounts for the financial year 2011-12.
The learned Commissioner of Income Tax should have appreciated that the prior period credits amounting to Rs.4.16 crores, provided in the accounts in the financial year 2011-12 were already added back and that the department is not justified in holding that the alleged provision, not made, should be assumed to have been made and added back in the Assessment for the Assessment year 2013-14.
The learned Commissioner of Income Tax should have appreciated that the interest relates to a transaction where the Appellant Company, as a nodal agency, has allowed loans granted by Visakhapatnam Municipal Corporation (VMC), Rastriya ISPAT Nigam Limited (RINL) and National Thermal Power Corporation (NTPC), to Visakhapatnam Water Supply Company (VIWSCO) pass through its accounts. The Commissioner of Income Tax should have appreciated that the interest credited in any year is matched by a debit of the same amount of interest in respect of the transaction and that the Income Tax Appellate Tribunal dealing with an Appeal in the case of the Appellant for the Assessment year 2011-12 has held that the entries relating to the interest in this transaction are only a pass-through entries in the case of the Appellant. The Commissioner of Income Tax thus should have appreciated interest income in respect of the transaction relating to the VIWSCO is matched by interest payable to the 3 loaning companies. VMC, RINL and NTPC.
6. The learned Commissioner of Income Tax is not justified in sustaining the disallowance of Rs.1,60,76,293/- U/s.14A read with rule 8D, whereas this issue is squarely covered in favour of the Appellant Company by the decision of the Income Tax Appellate Tribunal in the Appeal for the Assessment year 2013-14. The Commissioner of Income Tax erred in holding that the facts in the Appeal for the Assessment year 2012-13 are different to those in the Appeal for the Assessment year 2013-14. For these and other grounds that may be urged at the time of hearing, it is prayed that the assessment is set aside or modified as may be deemed fit.”
The brief facts of the case are that, the assessee is a public sector undertaking (“PSU”) filed its original Return of Income (“ROI”) for A.Y. 2012-13 on 28.09.2012 admitting total income of Rs.5,32,90,560/-. The assessee filed revised ROI on 29.03.2014 revising the total income at Rs.14,50,22,050/-. The Learned Assessing Officer (“Ld. AO”) completed the assessment u/s.143(3) of the Income Tax Act, 1961 (“the Act”) on 23.03.2015 making certain additions and assessed the total income at Rs.35,21,40,343/-. Aggrieved with the order of Ld. Assessing Officer, the assessee filed appeal before the Ld. CIT(A), who provided part relief to the assessee and uphold two additions of Rs.2.43 Crores on account of under statement of prior period interest income (“prior period interest”) and Rs1,60,76,293/- u/s.14A of the Act, made by the Ld. AO.
4. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. At the outset, the Learned Authorised Representative (“Ld. AR”) submitted that they have raised six ground in this appeal. He further submitted that ground no.1 is general in nature and do not require any adjudication separately. However, ground nos.2 to 5 relates to addition of Rs.2.43 Crores on account of prior period interest and ground no.6 relates to addition of Rs.1,60,76,293/- u/s.14A of the Act.
5. As far as the addition of Rs.2.43 Crores on account of prior period interest is concerned, the Ld. AR submitted that during the audit of the CAG, the auditor pointed out that the interest income of Rs.2.43 Crores on unsecured loan given to VISCO for the F.Y. 2009-10 was not accounted by the assessee in their books of account. On such finding of the auditor, the assessee offered the same as income in A.Y. 2013-14. However, without considering the facts that the assessee had offered the prior period interest in A.Y. 2013-14, the Ld. AO again made the addition in A.Y. 2012-13. Therefore, the Ld. AR submitted that the addition made by the Ld. AO resulted into double taxation in the hands of the assessee. The Ld. AR brought our attention to the paper book, where page no.10 contains computation of income for A.Y. 2013-14, page no.58 contains general voucher dated 31.03.2013, page no.79 contains audited profit and loss statement for the year ending on 31.03.2013, page no.91 contains schedule of other income for A.Y. 2013-14 and page no.93 contains schedule of prior period item (net), in lieu of their submission that the prior period interest has been taken as income in A.Y. 2013-14. In their alternate submission, the Ld. AR submitted that the relevant income relates to A.Y. 2010-11 and it could have been added by the Ld. AO in A.Y. 2010-11 only and not in A.Y. 2012-13. Finally the Ld. AR prayed before the bench to delete the addition made by the Ld. AO.
Per contra, the Learned Department Representative (“Ld. DR”) relied on the orders of revenue authorities and prayed before the bench to uphold the addition made by the Ld. AO.
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the paper book, where page no.10 contains computation of income for A.Y. 2013-14, page no.58 contains general voucher dated 31.03.2013, page no.79 contains audited profit and loss account statement for the year ending on 31.03.2013, page no.91 contains schedule of other income for A.Y. 2013-14 and page no.93 contains schedule of prior period item (net). On perusal of all these documents, we found that the assessee has offered the prior period interest as income during A.Y. 2013-14. Therefore, we are of the considered opinion that once the assessee had considered the income in one year, the same cannot be taxed again in other year. Otherwise also, the prior period interest is related to A.Y. 2010-11. Hence the Ld. AO should have added the income in A.Y. 2010-11, which the Ld. AO failed to do so. Therefore, we direct the Ld. AO to delete the addition of Rs.2.43 Crores. Accordingly, the ground nos.2 to 5 of the assessee are allowed.
With regard to ground no.6 relating to addition of Rs.1,60,76,293/- u/s.14A of the Act, the Ld. AR submitted that they have claimed exempted income of Rs.15,58,12,920/- u/s.10(34) of the Act on account of dividend income. The assessee did not disallow any expenditure suo moto qua this exempted income u/s.14A of the Act. Therefore, the Ld. AO calculated the disallowance of Rs.1,60,76,293/- in accordance with the Rule 8D(2)(ii) & (iii) of the I.T. Rules, 1962 (“the Rules”). The Ld. CIT(A) also upheld the addition made by the Ld. AO.
Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us.
The Ld. AR submitted that under the similar issue in assessee's own case in for A.Y. 2013-14 dated 20.01.2021 at para no.6, the ITAT held that “Rule 8D(2) (iii) is clear that the disallowance should be made under the said rule of those investments, on which the assessee earned exempt income, but not on the entire investment.” Finally, the Ld. AR prayed before the bench that for calculation of disallowance under Rule 8D(2)(ii) & (iii), the investment which has not generated exempt income should be excluded for the calculation of such disallowance.
Per contra, Ld. DR relied on the orders of revenue authorities and prayed before the bench to uphold the addition made by the Ld. AO.
We have heard the rival contentions and also gone through the records in the light of the submissions made by either side. We have gone through the decision of co-ordinate bench of ITAT in assessee's own case in dated 20.01.2021 for A.Y. 2013-14, in similar issue at para 6, the ITAT held that “Rule 8D(2)(iii) is clear that the disallowance should be made under the said rule of those investments, which the assessee earned exempt income, but, not on the entire investment.” The relevant portion of the decision of the ITAT (supra) is reproduced as under :
“ 6. After hearing both the parties and perusing the material on record as well as going through the orders of revenue authorities, we observe that Rule 8D(2)(iii) is clear that disallowance should be made under the said rule on those investments, on which the assessee earns exempt income, but, not on the entire investments. In this connection, we refer to the decision in the case of Transport Corporation of India Ltd. in vide order dated 21st September, 2016, wherein the coordinate bench of this Tribunal has held as under: “11.1 While carefully reading the rule 8D(2)(ii), the formula given are: A X B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year: B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;
In particular, the notes for ‘B’ clearly states that the average value of investment, income from which does not or shall not form part of the total income. It is clear that we have to include those investments which has generated income and exclude those investments, which have not generated income. In the present case, AO had taken the total investment instead of those investments, which have generated income. Accordingly, we direct the AO to calculate the disallowance of interest as below (as per rule 8D): Interest X Investment (which generated income) / Average total assets The main reason is that as per section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which is exempt from tax. The relevance is the expenditure in relation to income. The quantification has to be undertaken in relation to the exempt income. The investment which has not generated exempt income should be excluded from the calculation of ratio to determine the disallowance. 11.2 Similarly, for the administrative expenses, 0.5% of average investments from which the exempt income is received should be considered instead of average of the total investments. 11.3 considering the above discussion, we direct the AO to recalculate the disallowance as per rule 8D as per the above guidance. Accordingly, ground raised by assessee is allowed.” As the issue under consideration is materially identical to that of the said case, following the conclusions drawn therein we direct the AO to recalculate the disallowance as per rule 8D as per the guidelines given as above in the case of Transport Corporation of India and calculate the disallowance of expenditure under rule 8D(2)(iii) taking the average investment from which the exempt income is received.” Following the above decision, we direct the AO to calculate the disallowance under rule 8D(2)(iii) in line with the above decision. The assessee is directed not to take any unnecessary adjournments for early disposal of the appeal. Needless to say that reasonable opportunity may be given to the assessee. Accordingly, the grounds raised by the assessee in this regard are treated as allowed for statistical purposes.” Respectfully following the decision of ITAT (supra), we hold that for calculation of disallowance under Rule 8D(2)(ii) & (iii), the investment which has not generated exempt income should be excluded from the average investment. Therefore we direct the Ld. AO to exclude the investment which has not generated exempt income for the purpose of calculation of disallowance u/s.14A of the Act after providing an opportunity of being heard to the assessee. Accordingly, ground no.6 of the assessee is allowed for statistical purposes.
ITA No.681/Hyd/2024 for A.Y. 2017-18
The assessee has raised the following grounds :
“ 1. The Orders of the learned Commissioner of Income Tax in so far as it is against the Appellant Corporation, is contrary to the facts of the case and the Provisions of Law.
2. The learned Commissioner of Income Tax erred in sustaining the disallowance of the claim for deduction of Rs.3,21,43,825 given by the Appellant by way of grant to Achutapuram Effluent Treatment Ltd (AETL). The learned Commissioner of Income Tax should have appreciated that this amount is given for meeting the cost of a Sewerage Treatment Plant set up by the said Achutapuram Effluent Treatment Ltd (AETL) for the purpose of treating effluents in the Achutapuram Industrial Estate, Visakhapatnam District. The learned Commissioner of Income Tax should have seen that this grant is incurred in connection with the business of the Appellant and therefore is an allowable deduction and that the treatment given by the AETL to this amount in its accounts does not change the nature of this outgo in the case of the Appellant Corporation.
3. The learned Commissioner of Income Tax should have directed the Assessing Officer to compute the total income starting with the income with Rs.2,3,87,47,660 instead of starting with Rs.26,91,27,290.
4. The learned Commissioner of Income Tax (Appeals) is not justified in disallowing of the expenditure of Rs.2,59,26,000, incurred by way of Corporate Social Responsibility. The Assessing Officer should have appreciated that this amount was incurred by the Appellant Corporation in the course of its business and that it is for the welfare of the employees working in the Industrial Estates.
5. The learned Commissioner of Income Tax should have directed the Assessing Officer to grant the MAT credit available in the computation tax payable for this year. For these and other grounds that may be urged at the time of hearing, it is prayed that the assessment is set aside or modified as may be deemed fit.”
At the outset, the Ld. AR submitted that the assessee is in appeal and raised as many as 5 grounds and stated that ground no.1 is general in nature and they are not pressing ground nos.4 & 5. Therefore ground nos.1, 4 & 5 do not require any separate adjudication.
With regard to ground no.2, the Ld. AR submitted that the Government of Andhra Pradesh vide G.O.Ms. No.135 dated 18.10.2016 of Industries & Commerce (INF) Department gave approval to the assessee for construction of operation of Common Effluent Treatment Plant (“CETP”) in Atchutapuram Industrial Estate through SPV company i.e. M/s. Atchutapuram Effluent Treatment Limited (“AETL”) in joint venture with industry members and assessee, with project cost of Rs.72 Crores. AETL was formed and the share of assessee was 26% in the SPV. As per the shareholders subscription agreement, the assessee had to contribute Rs.67.81 Crores in various forms i.e. Equity, Loan and grant. The grant component is Rs.17 Crores. Accordingly, during the year the assessee released an amount of Rs.3.21 Crores towards the grant. As the CETP is for the use of industrial entrepreneurs in the Industrial Park of assessee at Visakhapatnam, the grant released during the year was treated as expenditure in the books of accounts. As AETL had shown grant received of Rs.3.21 Crores as “Capital Reserve” in their financial statement, the Ld. AO disallowed the said grant of Rs.3.21 Crores, treating the same as capital expenditure in the hands of the assessee. The Ld. AR drew our attention to page nos.43 & 44 of the paper book where page no.43 is related to the approval given by the Industries and Commerce (Infra) Department, Government of A.P. for construction and operation of common effluent plant, where page no.48 contains the head- wise bifurcation of total project cost of Rs.72.62 Crores towards effluent treatment plant. According to which the assessee had to made total grant of Rs.17 Crores to AETL.
The Ld. AR further submitted that the assessee is a PSU and Govt. Agency. The payment of total grant of Rs.17 Crores to AETL is part of their business expenditure. Neither any capital asset is created by the assessee nor the assessee is going to get any benefit of enduring nature on account of such payment. Therefore, the Ld. AR prayed before the bench to treat the expenses as revenue expenditure and to delete the addition made by the Ld. AO. The Ld. AR also placed reliance on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. M/s. Shyam Intermediates in Tax Appeal no.1365 of 2006 dated 26.06.2007.
Per contra, the Ld. DR relying on the order of revenue authority submitted that the assessee is involved in business by entering into joint venture and is also having 26% share in AETL. The work to be performed by the AETL in future with the help of such grant will ultimately reduce the future liability of the assessee. If AETL would not performed the work the assessee will have to perform that work and would have to incur expenditure of their account. In this way, the assessee is having benefit of any enduring nature. The Ld. DR further submitted that the case relied on by the assessee is not applicable in the present case, because in that case the contribution was given to an existing plant, however in the case of the assessee, the plant is not in existence. Therefore, he submitted that grant given by the assessee is in the nature of capital expenditure and prayed before the bench to upheld the order of revenue authority.
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We are in agreement with the submission of Ld. DR with regard to the non-applicability of the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Shyam Intermediates (supra) and hold that the same is not applicable to the present case of the assessee. Further we are also in agreement with the other submission of the assessee that the company has neither created any capital asset nor got any benefit of enduring nature on account of payment of grant of Rs.17 Crores. We are also in agreement with the submission of the assessee that the assessee is a PSU and a government agency and it is the obligation cast on the assessee by the State Government to perform the work to be done by AETL. Hence, the grant made by the assessee on account of their routine business activity. Therefore, we hold that the payment of Rs.3.21 Crores made during the year being part payment of total grant of Rs.17 Crores by the assessee to AETL is in the nature of revenue expenditure. Accordingly, we direct the Ld. AO to delete the addition.
Now coming to ground no.6 of the assessee, the Ld. AR submitted that, the Ld. CIT(A) vide his another order dated 13.06.2024 for A.Y. 2017-18 has given relief to the assessee qua the matter raised under this ground and therefore this ground become infructuous. However, the Ld. AR prayed before the bench to make a suitable direction to Ld. AO to give effect to the order of Ld. CIT(A) dated 13.06.2024 while giving effect to this order of ITAT. Considering the said request of Ld. AR, we direct the Ld. AO to give effect to the order of Ld. CIT(A) dated 13.06.2024 while giving effect to this order of ITAT.
To sum up, both the appeals of the assessee are allowed for statistical purposes.