Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income-Tax, ... vs M/S.Gmr Energy Ltd.,, Bangalore on 21 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBERAND
SHRI LALIET KUMAR, JUDICIAL MEMBER
ITA Nos. 1917 & 1918/Bang/2016
Assessment Years :2007-08 & 2008-09
M/s. GMR Energy Ltd.,
25/1, Skip House, The Deputy Commissioner of
Museum Road, Income Tax,
Vs.
Bangalore - 560 025. Central Circle - 2(2),
Bangalore.
PAN: AAACT 8420A
APPELLANT RESPONDENT
ITA No. 1987/Bang/2016
Assessment Year : 2007-08
M/s. GMR Energy Ltd.,
The Assistant Commissioner of 25/1, Skip House,
Income Tax, Museum Road,
Vs.
Central Circle - 2(2), Bangalore - 560 025.
Bangalore.
PAN: AAACT 8420A
APPELLANT RESPONDENT
Assessee by : Shri Sunil Jain, CA
Revenue by : Shri BiswaranjanSasmal, CIT (DR)
Date of hearing : 14.11.2017
Date of Pronouncement : 21.11.2017
ORDER
Per Bench:
Out of these three appeals, there are two cross appeals of the assessee and revenue for Assessment Year 2007-08 which are directed against the order of CIT (A)-11, Bangalore dated 29.08.2016 and the remaining third appeal is for Assessment Year 2008-09 which is filed by the assessee and this is directed against a separate order of CIT (A)-11 dated 29.08.2016.
2. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 2 of 9
3. The grounds raised by the assessee in Assessment Year 2007-08 in ITA No. 1917/Bang/2016 are as under.
"Ground 1: Order passed under section 143(3) r.w.s. 153A is liable to be quashed
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that in case a notice under section 153A is issued the Assessing Officer is bound to assess and reassess the total income of the Appellant.
2. The Joint Commissioner of Income-tax, Circle-2(3), Hyderabad has completed the assessment of the Appellant vide order dated July 31, 2008 passed under section 143(3) and in the course of such assessment proceedings full scrutiny and examination was made. A search and seizure operation under section 132 was conducted on October 11, 2012 and during the course of search no incriminating documents or undisclosed income was found.
3. The CIT(A) has erred in not considering that having regard to the second proviso to section 153A, the completed assessment cannot be disturbed except only in the case where there is any undisclosed income found in the course of search or any incriminating documents pointing towards such undisclosed income is found in the course of search or in the course of assessment proceedings under section 153A of the Income-tax Act.
4. The Appellant therefore prays that the order passed by the Assessing Officer is contrary to the provisions of law and liable to be quashed since no undisclosed income is found in the course of search or in the course of proceedings under section 153A.
Without prejudice to the above Ground 2: Disallowance under section 14A
1. On the facts and circumstances of the case and in law, the learned CIT (A) has erred in holding that disallowance under section 14A to be made at 1.50% of dividend income of Rs.5,04, 74,862/- towards indirect expenses incurred for earning the dividend income over and above the expenses considered by the Appellant for disallowance under section 14A of Rs.57,756/-. The amount of disallowance under section 14A as per the learned CIT(A) works out to Rs.8,14,879/- [Rs.7,57,123 (1.50% of dividend income) + Rs.57,756].
2. The additional amount of disallowance worked out at Rs. 7,57, 123/- in no case can be considered as the amount incurred to earn exempted income for the purpose of section 14A.
ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 3 of 9
3. The Appellant therefore prays that the Assessing Officer be directed to delete the disallowance of Rs. 7,57,123/- made under section 14A.
Ground 3: Computation of Book Profit under section 115JB
1. The learned CIT(A) failed to appreciate and ought to have held that for the purpose of computation of Book Profit under section 115JB, the actual amount incurred for earning exempted income having regard to books of account is to be considered and not 1.50% of dividend income earned.
2. The Appellant therefore prays that the Assessing Officer be directed to consider the amount for add back to the amount of net profit as is being incurred to earn exempted income having regard to the books of account.
Ground 4: Deduction under section 80IA
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Assessing Officer that interest income on deposits with banks placed as per Trust and Retention Account Agreement of Rs.7,56,42,184/- is not derived from the business of power generation and consequently not eligible for deduction under section 80IA.
2. The Appellant has availed loans for setting up of Power Plant. It has entered into Trust and Retention Account (TRA) agreement dated March 21, 2001 at the instance of lenders to ensure that a certain minimum amount of liquidity is maintained for the purposes of meeting various obligation of the company. Till the time the actual payments are made the Project Company is allowed under the TRA Agreement, to park these funds in certain permitted categories of investments.
3. The Appellant therefore prays that the Assessing Officer be directed to treat the interest income on deposits with banks as per TRA Agreement as derived from the business of power generation and accordingly eligible deduction u/s.80IA on the same.
Ground 5:
The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal."
4. The grounds raised by the revenue in this Year in ITA No. 1987/Bang/2016 are as under.
"1. Whether CIT(A) was right in holding the Margin Money Deposits with banks for bank guarantee & income from Foreign Exchange Gain not treating as the Income from Other Sources."
ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 4 of 9
5. The grounds raised by the assessee in Assessment Year 2008-09 in ITA No. 1918/Bang/2016 are as under.
"Ground 1: Adjustment towards interest-free financial assistance provided to theAssociated Enterprise
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Assessing Officer that interest is to be charged under section 92 on the amount of interest- free financial assistance provided to GMR Energy Mauritius Limited, Associated Enterprise (AE). The learned CIT(A) has held that adjustment is to be made at LlBOR plus additional charge as against annualized average yield on 5 years BB rated bond (17.27%) considered by the Assessing Officer.
2. The Appellant has provided financial assistance of USD 2.50 MN to GMR Energy Mauritius Limited (AE) for meeting the business development activities and has not charged interest as a measure of commercial expediency. The Appellant has not derived any income and in the absence of which, the Transfer Pricing Regulations are not applicable.
3. The Appellant therefore prays that the Assessing Officer be directed to delete the adjustment made towards interest-free financial assistance provided to Associated Enterprise.
Ground 2: Disallowance under section 14A
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Assessing Officer in making disallowance under section 14A at Rs.3,03,27,000/- being 0.50% of average exempt investments.
2. The learned CIT(A) has erred in holding that a fresh ground on a settled issue by ITAT cannot be allowed in search proceedings as the Appellant failed to take plea during the assessment proceedings or appellate proceedings. The Appellant during the course of original assessment proceedings and appellate proceedings has taken up the issue of disallowance u/s.14A and it is not a fresh ground.
3. The learned CIT(A) failed to appreciate and ought to have held that the Appellant has invested in the subsidiary companies to hold strategic investment in subsidiaries and therefore the said investments could not be considered for disallowance under section 14A of the Act.
4. The additional amount of disallowance worked out at Rs.3,03,27,000/-based on formula prescribed in Rule 8D(2)(iii) in no case can be considered as the amount incurred to earn exempted income for the purpose of section 14A.
ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 5 of 9
5. The Appellant therefore prays that the Assessing Officer be directed to delete the disallowance of Rs.3,03,27,000/-made under section 14A read with Rule 8D(2)(iii).
Ground 3: Computation of Book Profit under section 115JB
1. The learned CIT(A) failed to appreciate and ought to have held that for the purpose of computation of Book Profit under section 115JB, the actual amount incurred for earning exempted income having regard to books of account is to be considered and not the amount worked out based on formula prescribed in Rule 8D(2)(iii).
2. The Appellant therefore prays that the Assessing Officer be directed to consider the amount for add back to the amount of net profit as is being incurred to earn exempted income having regard to the books of account.
Ground 4:
The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal."
6. The assessee has raised some additional grounds also in this year which read as under.
"Order passed under section 143(3) r.w.s. 153A and 144C is liable to be quashed
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that in case a notice under section 153A is issued the Assessing Officer is bound to assess and reassess the total income of the Appellant.
2. The Additional Commissioner of Income-tax, Range - 11, Bangalore has completed the assessment of the Appellant vide order dated December 27, 2010 passed under section 143(3) and in the course of such assessment proceedings full scrutiny and examination was made. A search and seizure operation under section 132 was conducted on October 11, 2012 and during the course of search no incriminating documents or undisclosed income was found.
3. The CIT(A) has erred in not considering that having regard to the second proviso to section 153A, the completed assessment cannot be disturbed except only in the case where there is any undisclosed income found in the course of search or any incriminating documents pointing towards such undisclosed income is found in the course of ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 6 of 9 search or in the course of assessment proceedings under section 153A of the Income-tax Act.
4. The Appellant therefore prays that the order passed by the Assessing Officer is contrary to the provisions of law and liable to be quashed since no undisclosed income is found in the course of search or in the course of proceedings under section 153A."
7. At the very outset, it was submitted by ld. AR of assessee that this issue was raised by the assessee before the CIT (A) also as per ground no. 3 in Assessment Year 2007-08 that in a case, where there is no incriminating material found in the course of search and the assessment has not abated as per the second proviso to section 153A, invoking of the provisions of section 153A is not justified. He submitted that in Assessment Year 2008-09 also, similar ground was raised before CIT (A) in ground no. 3 in that year also. He submitted that in both the years, this issue is covered in favour of the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Lancy Constructions as reported in 383 ITR 168 (Karnataka) but this judgment was not available at a time when the impugned orders were passed by the CIT(A) and therefore, the CIT(A) has followed another judgment of Hon'ble Karnataka High Court rendered in the case of Canara Housing Development Company Vs. DCIT as reported in 274 CTR 122 (Karnataka). He submitted a copy of the tribunal order rendered in the case of ACIT Vs. Cornerstone Properties Pvt. Ltd. in ITA Nos. 1714 to 1717/Bang/2013 and C.O. Nos. 62 to 65/Bang/2014 dated 08.09.2017 and pointed out that in this case, the Tribunal has considered both these judgments of Hon'ble Karnataka High Court and it was held by Tribunal in this case that in respect of this issue as to whether the invocation of section 153A is valid or not in a case where no incriminating material was found, the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Lancy Constructions (supra) is to be followed and the earlier judgment rendered in the case of Canara Housing Development company Vs. DCIT (supra) is not relevant for deciding this issue. At this juncture, this was observed by the bench that in order to decide the issue in dispute by following this judgment of Hon'ble Karnataka High Court, it has to be seen as to whether any incriminating material was found in the course of search or not and therefore, the bench wanted to know as to whether ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 7 of 9 the copy of panchanama etc. has been made available by the assessee before the Tribunal in the paper book and whether there is any finding of authorities below on this aspect. In reply, it was submitted by ld. AR of assessee that the relevant material is not readily available and therefore, the matter may be restored back to the file of AO/CIT (A) for fresh decision in the light of this later judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Lancy Constructions (supra) after examining the factual aspect. The ld. DR of revenue supported the assessment order in both years.
8. We have considered the rival submissions. We find that this issue was very much raised by the assessee before the CIT (A) as to whether the invocation of the provisions of section 153A is valid or not in the facts of the present case but this issue was decided by CIT (A) by following the judgment of Hon'ble Karnataka High Court rendered in the case of Canara Housing Development Company Vs. DCIT (supra). The CIT(A) has also referred to the later judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Lancy Constructions (supra) but he had declined to follow this later judgment by observing on page no. 12 of its order that in the later judgment, the earlier judgment of Hon'ble Karnataka High Court rendered in the case of Canara Housing Development Company Vs. DCIT (supra) was not considered and therefore, the earlier judgment rendered in the case of Canara Housing Development Company Vs. DCIT (supra) still holds good. We find that in the Tribunal order rendered in the case ofACIT Vs. Cornerstone properties Pvt. Ltd. (supra), both the judgments were considered and it was held that earlier judgement rendered in the case of Canara Housing Development Company Vs. DCIT (supra) is not relevant because in that case, this was admitted position of fact that incriminating material was found during the course of search. But in the later case rendered in the case of CIT Vs. Lancy Constructions (supra), it was noted that no incriminating material was found in the course of search and it was held that in the absence of incriminating material having been found in the course of search, the revenue cannot get a second opportunity to reopen the concluded assessment. But to consider the applicability of this judgement in the present case, it is essential to examine the fact as to whether any ITA Nos. 1917, 1918 & 1987/Bang/2016 Page 8 of 9 incriminating material was found in the course of search or not. Neither in the assessment order nor in the order of CIT (A), there is any discussion on this aspect of the matter. The relevant panchanama is also not made available before us by any side in the paper book. Under these facts, we feel it proper to restore the entire matter back to the file of CIT (A) for fresh decision in the light of this later judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Lancy Constructions (supra) after examining this factual aspect of the matter as to whether any incriminating material was found during the course of search or not. If required, the CIT (A) may obtain remand report form AO on this aspect i.e. finding of incriminating material in the course of search and thereafter, he should pass necessary order as per law in both years after providing adequate opportunity of being heard to both sides.
9. In view of our decision on this technical aspect in both years, other grounds on merit raised in all these appeals do not require any adjudication at this stage because the technical issue should be decided first and thereafter only, the issue on merit should be decided. We therefore, hold that after deciding technical aspect, CIT (A) should decide the entire aspect on merit in both years afresh.
10. In the result, all the three appeals including two appeals of the assessee and one of revenue are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(LALIET KUMAR) (ARUN KUMAR GARODIA)
Judicial Member Accountant Member
Bangalore,
Dated, the 21st November, 2017.
/MS/
ITA Nos. 1917, 1918 & 1987/Bang/2016
Page 9 of 9
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bangalore.