Income Tax Appellate Tribunal - Hyderabad
Dy. Commissioner Of Income Tax , ... vs Gvk Energy Limited , Hyderabad on 25 March, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B": HYDERABAD
(THROUGH VIRTUAL CONFERENCE)
BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA No. 925/H/2019
Assessment Year: 2015-16
Dy. Commissioner of Vs. GVK Energy Ltd.,
Income-tax, Circle - 2(2), Hyderabad.
Hyderabad. PAN - AADCG 2348H
(Appellant) (Respondent)
Revenue by: Shri Rohit Mujumdar
Assessee by: None
Date of hearing: 16/02/2021
Date of pronouncement: 25/03/2021
ORDER
PER L. P. SAHU, AM:
This appeal filed by the Revenue is directed against the order of CIT(A) - 2, Hyderabad for AY 2015-16 involving proceedings u/s 143(3) of the Income-tax Act, 1961 (in short 'the Act') on the following grounds of appeal:
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1. "Whether on the facts and circumstances of the case and in 9,21,61,517/- law, the CIT (A) is correct in deleting the additions made by the A.Q in accordance with the express provisions u/s.14A of the Income Tax Act, 1961 and CBOT circular No.5/2014 dated l1002.2014?''
2. "Whether the CIT (A) is correct in relating the disallowances Nil to exempt income earned during the year when Sec.14A does not use the word "income of th e year" but "income under the Act" and in light of the clarification issued by the CBDT that Rule.8D r.w.s.14A provides for disallowance of expenditure where the taxpayer in a particular year has not earned any exempt income ?"
3. "Whether on the facts and circumstances of the case and in Nil law, the ClT(A) is correct in limiting disallowance uls.14A r.w.r 8D(2)(ii} only on the average investment which yielded dividend income and not on the average of the entire investment by ignoring that substituted Rule.8(D)(2)(ii} and erstwhile Rule.8D(2)
(iii) envisages disallowance on average of investment and income from which does not or shall not form part of total income and also ignoring the order of the Hon'ble ITAT order in the case of Mis. Bellwether Micro Finance Fund Vs. ITO on which he has placed reliance?"
2. Brief facts of the case are that the assessee, a limited company, filed its return of income for the AY 2015 -16 on 30/09/2015 electronically u/s 139(1) of the Act declaring a total loss of Rs. 35,81,00,299/-. Subsequently, the case was selected for scrutiny and statutory notices were issued, :- 3 -: ITA No. 925/Hyd/19 G v k E ne r gy L t d. , H y d e r ab a d.
against which, the ld. AR of the assessee filed the required information as called for.
2.1 During the course of scrutiny proceedings, the AO observed that the assessee had shown 'Long term Borrowings' at Rs. 878,23,00,000/- and 'Short term Borrowings' at Rs. 107,76,00,000/- in the Balance sheet as on 31-03-2015. He noticed that the assessee company had debited an amount of Rs.48,26,00,000/- as 'Finance Cost' to the Profit and Loss account, on such borrowings. Further, he observed that the assessee company had made Non- Current investments to the tune of Rs.2939,82,00,000/ - and Current Investments to the extent of Rs.9,86,00,000/ - out of the above borrowed funds. Therefore, the AO asked the assessee to show cause as to why the disallowance u/s 14A rwr 8D should not be made in this case. The AR of the assessee company vide its letter dated 03-11-2017 submitted that for the purpose of disallowance u/s 14A rwr 8D, there should be an actual receipt of income which is not forming part of the total income and the disallowance is not applicable if no exempt income is earned. The assesse e :- 4 -: ITA No. 925/Hyd/19 G v k E ne r gy L t d. , H y d e r ab a d.
further stated that in the instant case, since the assessee company has not earned any exempt income, the provisions u/s 14A of the Act are not applicable. In support of his claim, the AR of the assessee also relied on various case laws some of which are given as under:
i) Cheminvest Limited vs CIT (ITA 749/Del.(2014)
ii) CIT vs Holcim India Pvt Ltd (2014) 90 CCH 081 (Del HC)
iii) ACIT vs Vireet Investments Pvt Ltd.
(ITA 502/0ell20 12) Further, the AR of the assessee submitted that the company had already disallowed a sum of Rs.2,80,900/- u/s 14A of the Act and the other expenditure claimed by the Company corresponds to the business operations that was incurred for the purpose of the business. Accordingly, the AR requested that no addition disallowance u/s l4A should be made in this case considering the assessee company has not earned any exempt income.
2.2 After considering the submissions of the assessee, the AO referring to the CBDT Circler No. 05/2014, dated 11/02/2014, computed the disallowance u/s 14A rwr 8D(ii) :- 5 -: ITA No. 925/Hyd/19 G v k E ne r gy L t d. , H y d e r ab a d.
at Rs. 27,11,43,034/- by holding that since the assessee had investments during the year the disallowance u/s 14A as per the amended rule 8D, has to be made.
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A), who has deleted the disallowance by relying on the decision of the ITAT, Hyderabad in the case of DCIT Vs. Maheshwari Mega Ventures Ltd., ITA No. 367/Hyd/2013, dated 03/02/2017 observing that the assessee has not earned any dividend income during year on such investments, therefore, no disallowance is warranted in the case of the assessee.
4. Aggrieved by the order of the CIT(A), the revenue is in appeal before the ITAT.
5. At the time of hearing, none appeared on behalf of respondent-assessee, therefore, we dispose of this appeal after hearing ld. CIT-DR and perusing the material available on record.
6. It is settled position of law that the provisions of section 14A can be applied to quantify the expenses in relation to exempt income. The Rule 8D can be applied only :- 6 -: ITA No. 925/Hyd/19 G v k E ne r gy L t d. , H y d e r ab a d.
when there is difficulty in finding the expenditure relating to exempt income. In the case under consideration, we find during the course of hearing that the assessee has not derived any exempt income in the relevant previous year so as to attract section 14A rwr 8D as per case law Cheminvest Ltd., reported in (2015) 378 ITR 33 (Del.) , Chettinad Logistics Private Limited [2017] (4) TMI 298 - MADRAS and CIT vs. Corrteck Engineering Pvt. Ltd. 372 ITR 97 (Gujrat). It is however made clear that the learned Assessing Officer shall be at liberty to examin e the assessee's financials along with source of investments in the year in which they yield exempt income.
7. In the result, appeal of the revenue is allowed for statistical purposes.
Pronounced in the open court on 25 th March, 2021.
Sd/- Sd/-
(S.S. GODARA) (L. P. SAHU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 25 th March, 2021.
kv
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G v k E ne r gy L t d. , H y d e r ab a d.
copy to :
1 DCIT, Circle - 2(2), Room No. 513, 5 th Floor, Signature Towers, Opp. Botanical Gardens, Kondapur, Hyderabad - 500 084 2 GVK Energy Ltd., 156-159, Paigah, SP Road, Secunderabad - 500 003 3 CIT(A) - 2, Hyderabad.
4 Pr. CIT - 2, Hyderabad 5 ITAT, DR, Hyderabad.
6 Guard File.