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आदेश/Order Per Krinwant Sahay, A.M.:
The appeal in this case has been filed by the Revenue against the order dated 08.02.2023 of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi.
Grounds of appeal are as under: -
193-Chd-2023 – Haryana Vidyut Prasaran Nigam Ltd., Panchkula 2 1. Whether the Ld. CIT(A) is right in law in holding that disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 was not called for as the Assessee has not earned any exempt income, ignoring the legislative intent of the statute, further clarified vide Circular No. 5 of 2014 dated 11.02.2014 which provides for disallowance of expenditure even where the Assessee has not earned any exempt income in a particular year?
2. Whether on the facts and in the circumstances of the case and in law, Ld. Commissioner of Income Tax (Appeals) erred in law in glossing over the fact that the Assessee possessed funds mixed in nature / common pool and the interest paid by the Assessee is also an interest on the investments made, resultantly the deletion of disallowance under Section 14A of the Income Tax Act, 1961 was not made out, affirmed by the Jurisdictional High Court in the matter of Avon Cycles Vs. CIT, Ludhiana, bearing of 2013?
Whether on the facts and in the circumstances of the case and in law, Ld. CIT (Appeals) is right in referring to the decision(s) of the Hon'ble P&H High Court decision in the case of CIT Vs. Winsome Textile Industries Ltd., reported as [2009] 319 ITR 204, ignoring the fact that assessee's case is distinguishable on facts and law, as the Hon'ble Courts have not considered the Circular No. 5 of 2014 dated 11.02.2014?
4. It is prayed that the order of the Ld. CIT(A) be set-aside and that of the AO be restored.
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5. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off.
3. Though a number of grounds have been raised by the Revenue but the only issue involved in aforesaid grounds is confirmation of addition made by the Assessing Officer on the basis of Rule 8-D of the Income Tax Rules, 1962 read with section 14A of the Income Tax Act, 1961 (in short 'the Act').
Brief facts of the case, as enumerated by the Assessee are as under:-
1.0 Before proceeding to tender arguments in regard to Grounds of Appeal taken by the Income tax Department, it is considered necessary to bring to your notice the historical background in the case specifically in regard to disallowance made under section 14A r/w rule 8D of the Income tax Rules. 1.1 The appellant corporation held following investments as on 31.03.2017;
SR. NO. PARTICULARS AMOUNT (RS.) 1 Investment in UHBVNL 5,46,98,55,000 2 Investment in DHBVNL 4,37,27,35,000 3 Investment in HPGCL 1,000
193-Chd-2023 – Haryana Vidyut Prasaran Nigam Ltd., Panchkula 4 4 Investment against 9,66,20,000 contingency reserves 5 Other Investments 93,80,000 TOTAL 9,94,85,91,000 1.2 In the matter, it is submitted that investments by way of equity shares in UHBVNL and DHBVNL were not made by the appellant but the same were taken over by the Appellant corporation from HSEB at the time of assets transfer under a transfer scheme notified by the Govt, of Haryana. Further stated* that no loan was raised by the appellant corporation for these investments. It is a matter of record that the investments in equity shares of UHBVNL/ DHBVNL which were held as investments in the hands of HSEB, came to vest in hands of the Appellant Corporation at the time of restructuring / reorganization.
1.3 As regards Investment appearing in the balance sheet under the head "contingency reserves" and "other investments", it is submitted that these investments represent the amount held by the appellant corporation in the FDRs and bonds. On the sums held in FDRs and bonds, the appellant corporation earned taxable income in the form of interest amounting to Rs.20468269 (Rs. 18346820 on bonds plus Rs.2121449 on FDRs) as per which it is clear that since the sums held under the head investments resulted in accrual of taxable income cannot be brought under scope of provisions of Section 14A of Income tax Act.
193-Chd-2023 – Haryana Vidyut Prasaran Nigam Ltd., Panchkula 5 1.4 Further brought out that during course of carrying out its activities, the Appellant corporation had raised loans from NCRPB, PGCIL, REC, PFC, NABARD, market committees, PGCIL etc. for the purpose of specific power project(s)/schemes for meeting working capital requirement or acquisition of assets. For this purpose Term Loans and Cash Credit Limits were availed from commercial banks. It is clear from the details of the loans that these loans/borrowings were raised/ made for creating capital assets and for funding working capital requirements and not for making investments in equity shares of companies or otherwise in the above stated investments. Interest was paid on the sums raised by way of borrowings/loans, which were specifically used for acquiring assets/ working capital, therefore cannot be attributed to the investments held by the appellant Corporation. Since the interest paid by the appellant was on such loans which resulted in creation of assets or funding of working capital, interest paid is directly attributable to such purposes and cannot attract provisions of Section 14A of Income tax Act. From the above description it is clear that; (i) No loan was raised by the appellant for making investments. The loans appearing in the balance sheet were raised by appellant for specific purposes and were utilized for these purposes only (acquisition of Capital assets of funding of working capital).
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(ii) Investments in UHBVNL and DHBVNL were transferred to HVPNL from erstwhile HSEB and thus question of investments having been made from borrowed funds does not arise.
(iii) No exempt/tax free income was derived by the appellant from the investments made in UHBVNL/DHBVNL.
(iv) No new investment were made during the year under question.
(v) Taxable income from the investments made in Investment against contingency reserves and other investments was earned by the appellant corporation.”
4. The DCIT Circle, Panchkula in his assessment order dated 20.12.2019 has discussed Circular No. 5 of 2014 dated 11.2.2014 on this subject issued by the Central Board of Direct Taxes and he has given his findings as under: “According to this Circular it is clear that 14A is applicable even in those cases also, where income did not arise. As a result, in this case 14A is applicable.”
However, the ld. CIT(A) in his appeal order dated 8.2.2023 has given a clear finding on this issue which is as under:-
“5.2 It is also to be observed here from the submissions that the major investments of the appellant are in UBHVNL / DHBVNL which are 193-Chd-2023 – Haryana Vidyut Prasaran Nigam Ltd., Panchkula 7 received from HSEB as per the transfer scheme notified by the Government of Haryana and no divided income was ever received from such investments. Further other investments are mainly made on Fixed Deposits which earned interest income and offered to tax by the appellant.
5.3 It is also observed that no fresh investment was made by the appellant during the previous year relevant to assessment year under consideration. Further, the Hon'ble ITAT, Chandigarh A Bench in their order dt. 17.03.2020 in the appellant own case for Assessment Year 2013-14 held that the disallowance u/s 14A of the Income Tax Act, 1961 is not warranted. In the present appeal, since the conditions and facts are identical, the respectfully following the decision, disallowance u/a 14A of the Income tax Act, 1961 made by the A.O. in the present case is hereby deleted.”
During the appellate proceedings, the ld. Counsel for the Assessee submitted that this issue is squarely covered by the order of the ITAT Chandigarh Bench in dated 17.3.2020, in the Assessee’s own case. The submissions of the Assessee are as under:- “It is submitted that the issue regarding disallowance under section 14A r/w Rule 8D squarely covered by earlier Order of Hon'ble ITAT, Chandigarh Bench, Chandigarh in Appeal no for assessment year 2013-14, in the case of the appellant itself.
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It is submitted that issue regarding disallowance under section 14A/ read with Rule 8D came up for consideration before the Hon'ble Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh in the case of the appellant Corporation itself for the assessment year 2013-14. In the issue under consideration in Appeal no relating to disallowance under Section 14A r/w Rule 8D of the Income tax Rules, appeal had been filed by the Income tax Department. In the appeal filed by the Income tax department, the deletion of disallowance of the sum made by the Assessing Officer allowed by the Ld. Commissioner of Income tax (Appeals) was challenged.
The Hon'ble ITAT while dismissing the appeal filed by the Income tax Department held as under; (Copy of order of Hon'ble ITAT, Chandigarh for the assessment year 2013-14 is enclosed herewith as Annexure-5 ); "9. We have considered the submissions of both the parties and perused the material available on record. In the present case it is an admitted fact that the Ld. CIT (A) by the following judgment of the Hon'ble Jurisdictional High Court deleted the impugned disallowance made by the AO under section 14A of the Act for the reasons that there was no exempt income claimed by the assessee, therefore, no disallowance could have been made for the expenses.
On the similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs. Winsome Textile Industries Ltd. (2009) 319ITR 204 (P&H) held that "in the present case, admittedly, the assessee did not make any claim for exemption, in such situation section 14A could have no application".
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In the present case also it is an admitted position that the assessee had not claimed any exempt income, so there was no question of making disallowance under section 14A of the Act. Therefore we do not see any merit in this appeal of the Department."
The ld. DR though relied on the order of the A.O. but fairly conceded that the issue for A.Y. 2013-14 was decided in favour of the Assessee by the order of the Tribunal dated 17.3.2020 (supra) and the appeal of the Revenue was dismissed by the Coordinate Bench of the Tribunal.
We have considered the findings of the Assessing Officer in the assessment order and the findings given by the CIT(A) and the arguments put forward by the ld. DR before us. We have also considered the written submissions filed by the ld. Counsel of the Assessee. We find that this issue is squarely covered by the order of the ITAT Chandigarh Bench of the Tribunal in Assessee’s own case in order dated 17.3.2020. As there is no difference in facts considered by the co-ordinate Chandigarh Bench of the ITAT in its order in (supra), and the fact brought on record by the Assessing Officer and the ld. CIT(A) during this year, therefore, we find no reason to disturb the ratio already decided by the Chandigarh bench of the ITAT on this issue in 193-Chd-2023 – Haryana Vidyut Prasaran Nigam Ltd., Panchkula 10 Assessee’s own in order dated 17.2.2020 (supra). Accordingly, Departmental appeal on the issue raised is dismissed.
In the result, appeal is dismissed. Order pronounced on 11.09.2024.