Commissioner Of Income Tax ... vs M/S. Gmr Energy Ltd
2021 Latest Caselaw 2069 Kant

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     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 1ST DAY OF JUNE 2021

                         PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                            AND

THE HON'BLE MR. JUSTICE HEMANT CHANDANGOUDAR

                   I.T.A. NO.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-560001.
                                              ... APPELLANTS
(BY SRI. JEEVAN J. NEERALGI, AGA)

AND:

M/S. GMR ENERGY LTD.,
NO.25/1, SKIP HOUSE
MUSEUM ROAD
BANGALORE-560025.
                                             ... RESPONDENT
(BY SRI. BALARAM R. RAO, ADV.)
                             ---
      THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 28.03.2014 PASSED
IN ITA NO.1184/BANG/2012 FOR THE ASSESSMENT YEAR 2008-
09, PRAYING TO:
      (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR
SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY
THE HON'BLE COURT AS DEEMED FIT.
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     (ii) SET ASIDE THE APPELLATE ORDER DATED 28.03.2014
PASSED BY THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH,
BANGALORE       IN     APPEAL     PROCEEDINGS     NO.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 the

following substantial questions of law:

"(1) Whether on the facts and circumstances of the case the Tribunal is right in law in setting aside the disallowance made by the assessing authority relating to expenditure claimed by assessee to an extent of Rs.11.11 Crores even when the assessee had failed to prove that the said expenditure has been incurred by assessee and not in the hands of M/s. VGPL?

(2) Whether on the facts and circumstances of the case the Tribunal is right in law in confirming the order of the Commissioner of Income Tax (Appeals) relating to disallowance of 0.5% of the average of the value of the investment, the income from which is exempt from tax even when the assessing authority rightly disallowed the disallowed Rs.7.58 crores under section 14A read with Rule 8D in accordance parameters of section 14A and as such the Tribunal failed to confirm the entire disallowance of Rs.7.58 crores?

(3) Whether on the facts and circumstances of the case the Tribunal is right in law in setting aside the disallowance of Rs.11.39 crores relating to interest claimed by assessee even though the assessee had diverted borrowed capital and had not charged interest on the same?"

2. Facts leading to filing of this appeal briefly

stated are that assessee is engaged in the business of

generation of power and operates a power generating

plant at Mangalore. The assessee filed the return of

income for the Assessment Year 2008-09, which was

revised on 04.05.2009 in which total income of

Rs.16,40,64,898/- was declared under the provisions of

the 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 notices

under Section 143(2) as well as Section 142(1) of the

Act were issued to the assessee on 18.01.2010,

02.03.2010, 08.06.2010 and 02.11.2010. The details

as 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, by which

the interest paid was not treated as revenue

expenditure and disallowance was made under Section

14A read with Rule 8D of the Rules. The interest on the

diverted borrowed capital was also disallowed. Thus, in

all, disallowance of Rs.43,85,79,362/- was made.

3. The assessee thereupon filed an appeal

before the Commissioner of Income Tax (Appeals) who

by an order dated 29.06.2012 allowed the claim with

regard 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 the

diverted borrowed capital was directed to be deleted and

it was held that there was no justification for making

disallowance under the aforesaid head to the extent of

Rs.11.39 Crores.

4. Being aggrieved, the assessee as well as the

revenue filed appeal before the Income Tax Appellate

Tribunal (hereinafter referred to as 'the tribunal' for

short). The tribunal by a common order dated

28.03.2014 inter alia upheld the decision of the

Commissioner of Income Tax (Appeals) with regard to

disallowance of interest paid not treated as revenue

expenditure. 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 Tax

(Appeals) with regard to disallowance of interest

expenditure relatable to investment made by the

assessee was also upheld. In the aforesaid factual

background, this appeal has been filed by the revenue.

5. Learned counsel for the revenue submitted

that the tribunal has not dealt with the issue pertaining

to interest paid which was not treated as revenue

expenditure elaborately and has not assigned any valid

and cogent reasons. It is also urged that the tribunal as

well as the Assessing Officer did not ascertain the

purpose for which the money was advanced to its sister

concern. It is further submitted that the tribunal ought

to have remitted the matter to the Assessing Officer for

conducting an enquiry. On the other hand, learned

counsel for the assessee has submitted that the first

substantial question of law involved in this appeal is not

in fact a question of law but is a finding of fact, which

has concurrently been recorded in favour of the

assessee 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)(iii) of the Rules, the submission of

the assessee has not been accepted and Assessing

Officer has been directed to re work the disallowance

and therefore, it is not necessary to answer the second

substantial question of law. It is further submitted that

third substantial question of law has rightly been

answered in favour of the assessee by the

Commissioner of Income Tax (Appeals) as well as the

tribunal.

6. We have considered the submissions made

by learned counsel for the parties and have perused the

record. Interest of Rs.11.11 Crores which was incurred

was utilized for providing financial assistance to its

wholly owned subsidiary of the assessee on account of

commercial expediency and the financial assistance was

utilized by the wholly owned subsidiary company for its

power generating business. In terms of the agreement

dated 11.01.2007, interest on the financial assistance

given to the wholly owned subsidiary was payable to the

assessee from first quarter calendar year 2011 and the

same was received. Therefore, the Commissioner of

Income Tax (Appeals) as well as the tribunal have

rightly treated the payment of interest of Rs.11.11

Crores by placing reliance on the decision of the

Supreme Court in 'S.A.BUILDERS VS. Commissioner

of Income Tax (Appeals), CHANDIGARH', 280 ITR

1 (SC). The aforesaid finding, which is concurrent in

nature does not suffer from any infirmity and cannot be

said to be perverse. Therefore, the first substantial

question of law is answered against the revenue and in

favour of the assessee.

7. So far as claim for disallowance under

Section 14A of the Act is concerned, the Commissioner

of Income Tax (Appeals) has negatived the submission

of the assessee and has directed the Assessing Officer to

re-work the disallowance. The aforesaid order has been

affirmed in appeal by the tribunal. Therefore, it is not

necessary to answer the second substantial question of

law.

8. So far as claim of the assessee with regard to

disallowance of interest expenditure relating to

investment made by the assessee is concerned, the

Commissioner of Income Tax (Appeals) after taking into

account the details furnished by the assessee, has

recorded the finding that there is a nexus between the

loan and the business of the assessee and there is no

nexus between interest bearing funds and the

investment made in the sister concern of the assessee.

Therefore, the finding recorded by the Commissioner of

Income Tax (Appeals) that investments are presumed to

be made out of surplus funds and the borrowed funds

have not been diverted for the purpose of providing

interest free financial assistance to its sister concerns

has been upheld. The aforesaid concurrent finding of

fact does not suffer from any infirmity and cannot be

termed as perverse. The third substantial question of

law is therefore, answered in the negative and against

the revenue.

In the result, the appeal is dismissed.

Sd/-

JUDGE

Sd/-

JUDGE ss