IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "A", NEW DELHI
BEFORE SMT.DIVA SINGH, J.M.
AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
I.T.A. No. 3456/DEL/2013
A.Y. 2009-10
ITO, Ward 2(2) Athena Energy Ventures P.Ltd.
Room 389 A Vs. Hall no.1, NBCC Tower
C.R.bdlg. 15 Bhikaji Cama Place
IP Estate New Delhi 66
New Delhi
PAN: AAGCA 2179 K
(APPELLANT) (RESPONDENT)
Assessee by : Dr.Rakesh Gupta, Adv.
And Sh.Amit Agarwal, C.A.
Department by : Ms.Y.Kakkar, DR
ORDER
PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue directed against the order of
Ld.CIT(A)-V, New Delhi dated 11.03.2013 pertaining to the A.Y. 2009-10.
2. The facts of the case are brought out at para 2 of the Ld.CIT(A)'s order
which is extracted for ready reference.
"2. The appellant company was carrying out the business of developing
power and other infrastructure projects directly or indirectly through special
purpose vehicle. The AO has completed the assessment at an income of
Rs.56,91,500/- against the returned loss of Rs.12,16,883/- after making
various additions/disallowances. Being aggrieved with the above additions,
this appeal has been filed in which it has been contended that (i) The AO has
not followed the principles of natural justice and the order passed by him u/s
143(3) is arbitrary.
(ii) Disallowance of expenses at Rs.30,377,148/- claimed by the appellant as
business expenditure is not in order.
(iii) Initiation of proceedings u/s 271(1)(c ) is against law and facts.
ITA 3456/Del/2013, AY: 2009-10
Athena Energy Ventures P.Ltd.
2.1. During appeal proceedings the appellant has filed an application under
rule 46A submitting therewith evidence to prove its point that the business
was being carried out by it during the previous year. The addl. Evidence has
been requested to be admitted because the AO had not raised any specific
query on the business being carried out by the appellant and had disallowed
the expenses claimed as business expenses. The addl.evidence running into
as many as 958 pages was referred to the AO for his version. The AO
submitted his report as per a letter dt. 30.1.2013 in which he has not resisted
the admission of addl. Evidence, it has however been submitted by him that
"without prejudice to the observation made in para 4 of the order u/s 143(3),
even if the contention of the assessee is given credence that it is carrying
activities that should be considered as business being business of holding of
investments then the expenses debited under P&L account have direct
correlation with the dividend income from the investments of the company.
Provision of s.14A therefore become applicable with regard to exempt dividend
income."
3. The First Appellate Authority allowed the appeal of the assessee.
Aggrieved the Revenue is in appeal before us on the following grounds.
"1. Whether the Ld.CIT(A) has erred on facts and in law in allowing the
business expenses claimed in the absence of likelihood of any business
income.
2. Whether the Ld.CIT(A) has erred on facts and in law in ignoring the fact
that provisions of s.14A are attracted on the exempt income if the existence of
business is accepted.
3. The appellant craves leave to add, alter or amend any/all of the grounds of
appeal before or during the course of hearing of the appeal."
4. We have heard Ms.Y.Kakkar, Ld.D.R. on behalf of the Revenue and
Dr.Rakesh Gupta, Ld. Advocate on behalf of the assessee.
5. The Ld.D.R. relied on page 2 last para of the assessment order and
submitted that 91% of the total funds available were invested by the
company in equity shares of the Associated Companies/SVPs. She
submitted that the First Appellate Authority has not examined the papers
and has unjustly reversed the order of the Assessing Officer. On S.14A she
submitted that it is a subject matter of appeal and the First Appellate
Authority had considered this Section in his appellate order. She
vehemently contended that just because the A.O. has committed a mistake,
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Athena Energy Ventures P.Ltd.
it cannot be continued by the First Appellate Authority or by the Tribunal.
Referring to assessee's paper book page 40, he submitted that the cash flow
does not indicate that the assessee has done any business. She
distinguished the case laws cited by the assessee and prayed that the order
of First Appellate Authority be upheld.
6. Dr.Rakesh Gupta, the Ld.Counsel for the assessee submitted that the
Ld.CIT(A) has given a finding that the assessee is in the business of setting
up of power projects and since there is a gestation period, mere non receipt
of business income, cannot lead to a conclusion that business has not
commenced. He filed computation of income, audited balance sheets,
assessment orders for the A.Y. 2007-08, 2008-09, 2009-10 and 2010-11
and submitted that in the earlier A.Y. 2008-09 and in subsequent A.Y.
2010-11 the Ld.A.O. has assessed income under the head "income from
business" and thus to hold that there is no income from business during
the impugned A.Y. as the business has not been set up, is not correct. He
submitted that the object of the assessee is not to hold investment but to do
business through a special purpose vehicle. He drew the attention of the
Bench to the assessment orders for the A.Y. 2008-09 at assessee's paper
book page 29 and for the A.Y. 2010-11 which is at assessee 's paper book
page 72, and pointed out that the A.O. has assessed the income in question
under the head `income from business'. He pleaded that Rule of
Consistency should be followed as was done by the Ld.CIT, D.R. For this
purpose he relied on the judgement of Hon'ble Supreme Court in the case of
Excel Industries Ltd. reported in 358 ITR 295(SC). On the issue of
disallowance u/s 14A, he submitted that the A.O. had intended to make a
disallowance u/s 14A but the assessee had made detailed submissions as to
why the disallowance should not be made u/s 14A. He drew the attention of
the Bench to the letter dt. 18th October,2011 para 11 and submitted that,
the A.O. on getting convinced with these submissions of the assessee, has
not made any disallowance u/s 14A. He submitted that all the investments
in question are business investments and under those circumstances no
disallowance u/s 14A can be made. For the proposition he relied on the
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Athena Energy Ventures P.Ltd.
judgement of the Jurisdictional High Court in the case of CIT vs. Oriental
Structure Engineers P.Ltd. in ITA 605/2012 judgement dt. 15.1.2013.
7. Rival contentions heard. On a careful consideration of the facts and
circumstances of the case, on perusal of material on record, orders of the
authorities below, case laws cited, we hold as follows.
8. The A.O. in this case had not raised any specific query during the
course of assessment proceedings on the aspect as to whether the assessee
has set up business and whether the business is being carried out by the
assessee. He simply disallowed the expenditure claimed on the
presumption that the assessee has not commenced business. Before the
First Appellate Authority the assessee filed additional evidences. The A.O.
did not object to the admission of these additional evidences. Even before
us there is no ground taken by the Revenue on the issue of admission of
additional evidence. We also find that the assessment orders for the
Assessment Year A.Y. 2008-09 as well as for the A.Y. 2010-11 was passed
u/s 143(3) of the Income Tax Act, 1961 (the Act) and the income in question
was assessed under the head "income from business". Thus for the
immediate preceding year and the subsequent year the AO accepts the
assessee's stand that business has commenced. The purpose for which the
assessee company was set up, is to develop power and other infrastructure
projects, either directly or indirectly, through special purpose vehicles (SVPs)
by participating in the equity share holding and management of the project
companies. The First Appellate Authority has on the ground of consistency
allowed the claim of the assessee. We find no infirmity in this order of the
Ld.CIT(A). Hence we uphold the same and dismiss this ground of Revenue.
9. This brings us to the ground of disallowance u/s 14A. The A.O. has
not made disallowance u/s 14A. The case of the Revenue is that the
Ld.CIT(A) ignored the provisions of S.14A of the Act in the appellate
proceedings.
10. Admittedly the assessee is in the business of setting up of power
projects by entering into joint ventures and for this purpose making
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Athena Energy Ventures P.Ltd.
investments in the SVPs. Hence the investments in question are trade
investments. The Hon'ble Delhi High Court in the case of CIT vs. Oriental
Structural Engineers P.Ltd. in ITA 605/2012 dt. 15.1.2013 (supra) has held
as follows.
"It was the contention of the revenue that Rule 8D of the I.T. Rules, 1962 had
not been applied properly in respect of the A.Y. 2008-09. This aspect has
been considered by the Tribunal in detail and it has observed as under:
"6.3. We have carefully considered the submissions and perused the records.
We find that Ld.CIT(A) has given a finding that only interest of Rs.2,96,731/-
was paid on funds utilised for making investments on which exempted income
was receivable. Further Ld.CIT(A) has observed that in respect of investment
of Rs.6,07,775,000/- made in subsidiary companies as per documents
produced before him, they are attributable to commercial expediency, because
as per submission made by the assessee, it had to form SPVs in order to
obtain contracts from the NHAI and the SPVs so formed engaged the assessee
company as contract to executive the works awarded to them (i.e. SPVs) by
the NHAI. In its profit and loss account for the year, the assessee has shown
the turnover from execution of these contracts and therefore no expense and
interest attributable to the investments made by the appellant in the PSVs
can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as
expense/interest incurred for earning exempted income. Under the
circumstances, Ld.CIT(A) is correct in holding that disallowance of a further
sum of Rs.40,556/- calculated @ 2% of the dividend earned is sufficient.
Under the circumstances, Ld.CIT(A) is correct in holding that disallowance of a
further sum of Rs.40,556/- calculated @ 2% of the dividend earned is
sufficient. Under the circumstances we do not find any infirmity in the order
of the Ld.CIT(A), hence we uphold the same.
On going through the above observations we are of the view that this is
merely a question of fact and does not involve any question of law much less
a substantial question of law, as the Tribunal held that the expenses which
have been claimed by the assessee were not towards the exempted income.
The disallowance, therefore, was rightly limited to a sum of Rs.40,556/-. The
question of interpreting Rule 8D is not in dispute and the only dispute is with
regard to facts which have been settled by the Tribunal.
The appeal is dismissed."
10.1. The Ld.D.R. tried to distinguish the case by submitting that in
the case of Oriental Structural Engineers P.Ltd. (supra) in the P&L account
the assessee has shown turnover from execution of contracts. In our view
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Athena Energy Ventures P.Ltd.
this is not material as the investment in this case is made in the form of
SPVs to undertake contracts and thus trade investment.
11. Applying the propositions laid down in this case law to the facts of the
case, we hold that no disallowance can be made u/s 14A of the Act.
12. In the result, Revenue 's appeal is dismissed.
Order pronounced in the Open Court on 03rd July, 2015.
Sd/- Sd/-
[DIVA SINGH] [J. SUDHAKAR REDDY]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt. the 03rd July, 2015
· Manga
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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