TMI Blog2017 (1) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue : Suhas Kulkarni ORDER Vikas Awasthy (Judicial Member) This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-II, Nashik dated 23-01-2013 for the assessment year 2009-10. 2. The brief facts of the case as emanating from records are: The assessee company is engaged in infrastructure development activity, mainly construction of roads and bridges on Built Operate and Transfer (BOT) basis. The assessee filed its return of income for the assessment year 2009-10 on 30-09-2009 declaring total income as Nil , by claiming deduction of ₹ 2,74,37,354/- u/s. 80(IA) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). The case of the assessee was selected for scrutiny under CASS and accordingly first statutory notice u/s. 143(2) of the Act was issued to the assessee on 18-08-2010. The assessee is a holding company of M/s. Hari Infrastructure Pvt. Ltd. and the assessee has floated two companies i.e. M/s. Nagar Kopergaon Infrastructure Pvt. Ltd. and M/s. Pranjal Infrastructure Pvt. Ltd. as Special Purpose Vehicle to carry out the project allotted by state Government. During the course of scrutiny assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT. Act, 1961 r.w. Rule 8D of LT. Rules, 1962 and disallowance of ₹ 72150/- on account of purchase of dubber which are forming part of the Profit Loss A/c in respect of income eligible to deduction under section 801A. 5) In the facts, circumstances and position of law learned CIT Appeals erred in making addition of ₹ 7,37,68,681/- under section 2(22)(e) of LT. Act, 1961 by searching a new source of income. 6) Without prejudice to ground No.5, in the facts, circumstances and position of law learned CIT Appeals exceeded his power in making addition under section 2(22)( e) in the garb of power of enhancement by discovering a new source of income which has not been considered by the Assessing Officer during the course of assessment proceedings while framing the assessment order U/s.143(3)(ii). 7) Appellant craves leave to add, alter, amend or substitute to above grounds of appeal at the time of hearing. 4. Shri Rakesh Joshi appearing on behalf of the assessee submitted at the outset that he is not pressing ground Nos. 1 and 3 raised in the grounds of appeal. 4.1 In respect of ground Nos. 2 and 4 relating to disallowance u/s. 14A r.w. Rule 8D, the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to make investment in preference shares. Even if there is any violation of the provisions of Companies Act, the Authorities administering Income Tax cannot go beyond the provisions of Income Tax Act and take action for violation of the provisions of the Acts which do not fall within their domain. To support his argument the ld. AR placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Credit Suisse Business Analysis (India) Pvt. Ltd. Vs. ACIT in ITA No. 993/Mum/2015 for assessment year 2010-11 decided on 05-08-2016. The ld. AR further submitted that where the investment has been made in share application money and the shares have not been allotted against the application money, the provisions of section 2(22)(e) are not attracted. In support of his contentions the ld. AR placed reliance on the following decisions : i. Commissioner of Income Tax Vs. Sunil Chopra in ITA 106/2011 decided on 27-04-2011 (Delhi-HC); ii. ITO Vs. Direct Information P. Ltd., 18 ITR 562 (Mum-Trib.); iii. DCIT Vs. Vikas Oberoi in ITA 4362/M/2011 for assessment year 2002-03 decided on 20-03-2013. 5. Shri Suhas Kulkarni representing the Department vehemently sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as PIPL ) of ₹ 3.02 crores. The assessee has formed these two new companies as Special Vehicle Purpose (SPV) to accomplish the projects allotted by Public Works Department (PWD), Government of Maharashtra. The said projects were purportedly allotted to the assessee on the condition that each project should be carried out by separate SPV of the assessee company. The assessee has made investment in the above said two newly formed SPVs by utilizing borrowed funds. The assessee has paid interest to the tune of ₹ 3.44 crores on the investment made in NKIPL and ₹ 0.23 crores in respect of investment made in the shares of PIPL. It is the case of the assessee that the assessee has not received any exempt income in the form of dividend etc. from the aforesaid two newly formed companies. The ld. AR has made an alternate submission in ground No. 4 of the appeal that even if disallowance u/s. 14A is sustained. The assessee is eligible to claim deduction u/s. 80(IA) on the said disallowance. To support his submissions the ld. AR has placed reliance on the CBDT Circular dated 02-11-2016. 9. We find that the Hon ble Delhi High Court in the case of Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been received which is exempt from tax, therefore, no disallowance u/s.14A should be made. It is also another alternate contention of the Ld. Counsel for the assessee that since the entire income of the assessee is eligible for deduction u/s.80IA(4), therefore, even if any disallowance is made the business income of the assessee will go up and therefore there will be corresponding deduction of the said amount and therefore it is revenue neutral. 18.1 We find some force in the arguments advanced by the Ld. Counsel for the assessee. We find an identical issue had come up before the Hon ble Delhi High Court in the case of Oriental Structure Engineers Pvt. Ltd. (Supra). In that case also investments were made in the subsidiary companies out of borrowed funds. The subsidiary company had to form special purpose vehicles (SPV) in order to obtain contracts from NHAI. The disallowance u/s.14A r.w. Rule 8D was restricted by the CIT(A) which was upheld by the ITAT. On further appeal by the Revenue, the Hon ble High Court dismissed the appeal filed by the Revenue by observing as under : This appeal has been preferred by the revenue against the order dated 02.12.2011 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the exempted income. The disallowance, therefore, was rightly limited to a sum of ₹ 40,556/-. The question of interpreting Rule 8-D is not in dispute and the only dispute is with regard to facts which have been settled by the Tribunal. The appeal is dismissed. 19. We also find merit in the alternate contention of the Ld. Counsel for the assessee that since assessee is entitled to deduction u/s.80IA(4), therefore, the addition, if any, has to be allowed u/s.80IA(4) and therefore, the same is revenue neutral. Admittedly, the income of the assessee is eligible for deduction u/s.80IA which the AO himself has allowed in the body of the assessment order. The returned business income has been allowed by the AO as deduction u/s.80IA as per the claim. Therefore, once a part of the interest expenditure is disallowed then the corresponding business income will go up. Therefore, the request of the Ld. Counsel for the assessee that the AO may be directed to increase the deduction u/s.80IA(4) to the extent of disallowance u/s.14A which increases the business profit to that extent is acceptable. In this view of the matter, we set aside the order of the CIT(A) and direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In View of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter Vl-A is admissible on the profits so enhanced by the disallowance. 11. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT (supra) has already decided the issue with respect to disallowance u/s. 14A has accepted the contentions of the assessee in respect of disallowance u/s. 14A on both the grounds. Thus, in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers of the Appellate Assistant Commissioner extend to matters considered by the Income tax Officer, and if a new source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of a finding by two tribunals and one right of appeal. 9. The question is whether we should accept the interpretation suggested by the Commissioner in preference to the one, which has held the field for nearly 37 years. In view of the provisions of sections 34 and 33B by which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 and specified the other intention in express words. The Income tax Act was amended several times in the last 37 years, but no amendment of section 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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