Ita/372/2014 Of Commissioner Of Income Tax (Central) v. M/S. Gmr Energy Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 1 DAY OF JUNE 2071 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’/BLE MR. JUSTICE HEMANT CHANDANGOUDARLT.A. NCO.372 OF 2014 BETWEEN: 1.|COMMISSIONER OF INCOME TAX| (CENTRAL), CENTRAL REVENUE BUILDING QUEENS ROAD, BANGALORE-560001.. 2.|THE ADDL. COMMISSIONER OF INCOME-TAX RANGE-11, NO.14/3-A, 5TH FLOOR| RASHTROTHANA BHAVAN BANGALORE-56000 1. .., APPELLANTS. (BY SRI. JEEVAN J. NEERALGI, AGA) AND" M/S. GMR ENERGY LTD.,NO.25/1, SKIP HOUSE.MUSEUM ROADBANGALORE-560025. ~. RESPONDENT (BY SRI. BALARAM R. RAO, ADV.)| THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 28.03.2014 PASSEDIN ITA NO.1184/BANG/2012 FOR THE ASSESSMENT YEAR 2008-O09, PRAYING TO: (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT. (ii) SET ASIDE THE APPELLATE ORDER DATED 28.03.2014|PASSED BY THE INCOME TAX APPELLATE TRIBUNAL ‘C' BENCH,BANGALORE.IN|APPEAL|PROCEEDINGSNO.ITA|NO.1184/BANG/2012 FOR ASSESSMENT YEAR 2008-09. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2008-09.The appeal was admitted by a bench of this Court on thefollowing substantial questions of law:| “(1) WhetherOf)thefacts|andcircumstances of the case the Tribunel IsrightIn|lawIn|settingasidethedisallowanceMadeDy theassessing authority relating to expenditure claimedby assessee to an extent of Rs.11.11Crores even when the assessee had failedto prove that the said expenditure hasbeen incurred by assessee and not in thehands of M/s. VGPL? (2)WhetherOf)thefactsandcircumstances of the case the Tribunel Isright in law in confirming the order of theCommissioner of Income Tax (Appeals)relating to disallowance of 0.5% of theaverage of the value of the investment,the income from which Is exempt from taxeven when the assessing authority rightlydisallowed the disallowed PRs.7.58 croresUnder section 14A read with Rule 8D inaccordance parameters of section 14A andas such the Tribunal failed to confirm theentire disallowance of Rs. 7.58 crores? (3)WhetherOf)thefactsandcircumstances of the case the Tribunel Isright"In|lawIn|settingasidethedisallowance of Rs.11.39 crores relating tointerest claimed by assessee even thoughtheadSSCSSCEhad|divertedborrowedcapital and had not charged interest onthe same?" 2 |Facts leading to filing of this appeal brieflystated are that assessee is engaged in the business of generation of power and operates a power generatingplant at Mangalore. The assessee filed the return ofincome for the Assessment Year 2008-09, which was.revised on 04.05.7009 in which total income of.Rs.16,40,64,898/- was declared under the provisions ofthe Act and book profit of Rs.144,62,37,586/- was.declared under Section 115JB of the Act. The return filed.by the assessee was taken up for scrutiny and noticesunder Section 143(2) as well as Section 142(1) of theAct were issued to the assessee on 18.01.2010,02.03.2010, 08.06.2010 and 02.11.2010. =The detailsas sought by the Assessing Officer were furnished by the)assessee and an order of assessment under Section.143(1) of the Act was passed on 27.12.2010, Dy which|tneinterest|paidWaSnottreatedasrevenueexpenditure and disallowance was made under Section14A read with Rule 8D of the Rules. The interest on the|diverted borrowed capital was also disallowed. Thus, inall, disallowance of Rs.43,85,/79,362/- was made. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 29.06.2012 allowed the claim withregard to interest paid but not treated as revenue|expenditure. Similarly, the disallowance under Section.14A read with Rule 8D(2)(i) of the Rules was restricted|to Rs.1,10,967/- and disallowance of interest on thediverted borrowed capital was directed to be deleted andit was held tnat there was no justification for making.disallowance under the aforesaid head to the extent of.Rs.11.39 Crores. | 4Being aggrieved, the assessee as well as tnerevenue filed appeal before the Income Tax AppellateTribunal (hereinafter referred to as the tribunal forShort). The tribunal by a common order dated28.03.2014 inter alia upheld the decision of theCommissioner of Income Tax (Appeals) with regard todisaliowance of interest paid not treated as revenueexpenditure. The claim for disallowance under Section. 14A of the Act made by the assessee to the extent it.was rejected was not accepted by the tribunal. Similarly,the finding of the Commissioner of Income _ Ta(Appeals) with regard to disallowance of interest.expenditure relatable to investment made by theassessee was also upheld. In the aforesaid factualbackground, this appeal has been filed by the revenue. 5.|Learned counsel for the revenue submittedthat the tribunal has not dealt with the issue pertainingto interest paid which was not treated as revenueexpenditure elaborately and has not assigned any valid|and cogent reasons. It is also urged tnat tne tribunal aswell as the Assessing Officer did not ascertain thepurpose for whicn the money was advanced to its sisterconcern. It is further submitted that the tribunal oughtto have remitted the matter to the Assessing Officer for|conducting an enquiry. On the other hand, learnedcounsel for tne assessee nas submitted tnat the first.substantial question of law involved in tnis appeal is not in fact a question of law but is a finding of fact, which.Nas concurrently been recorded in favour of theassessee by the Commissioner of Income Tax (Appeals)as well as the tribunal. It is further submitted that with.reference to claim of disallowance under Section 14A.read with Rule 8D(2)(ill) of the Rules, the submission of.the assessee has not been accepted and AssessingOfficer has been directed to re work the disallowance.and therefore, it is not necessary to answer the secondsubstantial question of law. It is further submitted thatthird substantial question of law has rightly been)answeredInfavour.Of theaSSeSSCECDy theCommissioner of Income Tax (Appeals) as well as thetripunal. — 6.|We have considered the submissions made§by learned counsel for the parties and have perused therecord. Interest of Rs.11.11 Crores wnicn was incurredwas utilized for providing financial assistance to itswholly owned subsidiary of the assessee on account of commercial expediency and the financial assistance wasutilized by the wholly owned subsidiary company for itspower generating Dusiness. In terms of the agreement.dated 11.01.2007, interest on the financial assistancegiven to the wholly owned subsidiary was payable to theassessee from first quarter calendar year 2011 and thesame was received. Therefore, the Commissioner ofIncome Tax (Appeals) as well as the tribunal haverigntly treated the payment of interest of Rs.11.11.Crores by placing reliance on the decision of theSupreme Court In|'S_A. BUILDERS VS. Commissionerof Income Tax (Appeals), CHANDIGARH’, 280 ITR1 (SC).The aforesaid finding, which is concurrent innature does not suffer from any infirmity and cannot beSaid to be perverse. Tnerefore, the first substantialquestion of law is answered against the revenue and infavour of the assessee. J.So far as caim for disallowance underSection 14A of tne Act is concerned, the Commissioner. J.So far as caim for disallowance underSection 14A of tne Act is concerned, the Commissioner. of Income Tax (Appeals) has negatived the submissionof the assessee and has directed the Assessing Officer tore-work the disallowance. The aforesaid order has beenaffirmed in appeal by the tribunal. Therefore, it is notnecessary to answer the second substantial question oflaw. 8 _So far as claim of the assessee with regard todisallowance.Of interestexpenditurerelatingCO investment made by the assessee is concerned, theCommissioner of Income Tax (Appeals) after taking into|account the details furnished by the assessee, hasrecorded the finding that there is a nexus between theloan and the business of the assessee and there is nonexusbetween interestbearing|funds|and|theinvestment made in the sister concern of the assessee..Therefore, the finding recorded by the Commissioner ofIncome Tax (Appeals) that investments are presumed to.be made out of surplus funds and the borrowed fundshave not been diverted for the purpose of providing interest free financial assistance to its sister concernshas been upheld. The aforesaid concurrent finding offact does not suffer from any infirmity and cannot be.termed as perverse. The third substantial question oflaw is therefore, answered in the negative and against.the revenue. In the result, the appeal is dismissed. Sd/-—JUDGE. SS| Sd/-JUDGE.