TMI Blog2019 (7) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... or in the order of the Ld. CIT(A) and accordingly we uphold the same . D isallowance under rule 8D(2)(ii) and 8D(2)(iii) - HELD THAT:- Investment out of interest-free funds available exist in the year under consideration, thus respectfully following the finding of the Tribunal, the disallowance for indirect interest expenses under rule 8D(2)(ii) amounting to ₹ 14,64,536/- is deleted. On the issue of 0.5% of average investment, the Tribunal [ 2018 (3) TMI 1572 - ITAT DELHI] has upheld the disallowance under rule 8D(2)(iii), thus respectfully, following the finding, the disallowance in the year under consideration of ₹ 6,24,445/- is sustained. Addition interest accrued on the Special Reserve Fund created and maintained by various cooperative electrical societies - HELD THAT:- As decided in assessee's own case CIT(A) has deleted the addition with respect to those societies whose confirmation of offering the interest income in the hands of those societies was finished by those societies. In absence of those certificates the additions were confirmed. DR could not point out any infirmity in the order of Id CIT(A). We are also of the considered view when the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2010-11. The grounds of the appeal are reproduced as under: Grounds of appeal of the assessee 1. On the facts and in the circumstances of the case and in Law, the Ld. CIT (Appeals) has erred in upholding the disallowance of ₹ 20,89,469/- u/s 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules 1962. 2. On the facts and in the circumstances of the case and in Law, the Ld. CIT . (Appeals) has erred in not appreciating that the assessee company is having | substantial interest free funds in the form of share capital and reserve surplus for making investments to earn incomes which are exempt under Income Tax I Act, 1961. 3. On the facts and in the circumstances of the case and in Law, the Ld. CIT (Appeals) has erred in upholding the addition of Rs. l,29i25r650/- being done by the AO on account of treating the interest income earned by The Cooperative Electrical Society, Sircila, on special reserve fund created and maintained by it out of the interest forgone by the appellant company, as the income of the appellant company. 4. On the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in the hands of the assessee i.e. M/s REC Ltd. 4. The appellant craves leave to add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing. 3. Briefly stated facts of the case are that the assessee company was engaged in the business of providing finance for rural electrification including power generation, transmission and distribution project. The company raises fund by way of issue of priority and non-priority sector bonds, infrastructure bond, loan from LIC and other banks and those funds are then deployed for financing power projects. For the year under consideration ,the assessee filed return of income on 13/10/2010 declaring total income of ₹ 2038,74,20,592/-, which was revised further on 30/03/2012 to ₹ 2038,64,69,164/- after claiming deduction under section 36(1)(viia) and 36(1)(vii) of the Income-tax Act, 1961 (in short the Act ). The case was selected for the scrutiny and notice under section 143(2) of the Act was issued and complied with. The assessment under section 143(3) of the Act was completed on 28/02/2013 after making certain additions/disallowances to the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2009-10. 4.4 We have heard the rival submissions and perused the relevant material on record. The Tribunal in ITA No.3011/Del/2014 for assessment year 2009-10 in the case of the assessee has dismissed the appeal of the Revenue against the order of the Ld. CIT(A) deleting the disallowances. The relevant finding of the Tribunal is reproduced as under: 39. We have carefully considered the rival contentions. The post retirement medical benefit provision has been created by the assessee in accordance with accounting standard 15 relating to employees benefit. The above provision was made on actuarial valuation in accordance with the post retirement medical scheme. The Id CIT(A) allowed the above claim holding that such provision is accrued liability and not contingent in nature. He relied upon the decision of the coordinate bench in Bokaro Power Supply Co. Ltd Vs. DCIT (4921/ Del/2010). Similar view has been taken by the Hon'ble Delhi High Court that where the provision has been created on the basis of actuarial calculation on a scientific basis the liability is not contingent but definite. We do not find any inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining, two disallowances under section 8D(2)(ii) and 8D(2)(iii) of the Rules , he sustained the disallowance. 5.3 Before us, the Ld. counsel of the assessee submitted that issue in dispute in relation to disallowance made under Rule 8D(2)(ii) and 8D(2)(iii) is covered by the decision of the Tribunal in ITA No. 3079/Del/2014 for assessment year 2009-10. On the issue of disallowance under rule 8D(2)(i) the Ld. counsel submitted that said expenses were never claimed in the profit and loss account as expense and therefore has rightly deleted by the Ld. CIT(A). 5.3 The Ld. DR, on the other hand, relied on the order of the Ld. CIT(A) in respect of the disallowance under rule 8D(2)(ii) and 8D(2)(iii) of the Rules. The Ld. CIT(DR) also filed written submissions on the issue of disallowance under section 14A of the Act relying on the decision of the Hon ble Supreme Court in the case of Maxopp Investment Limited reported in (2018) 91 taxman.com 154 . 5.4 We have heard the rival submission and perused the relevant material on record. As far as disallowance of ₹ 42,01,977/- under rule 8D(2)(i) of the Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the appellant did not nor could have claimed it against LTCG. The AO has not examined if the Management Fee and Trusteeship Fee were actually claimed in P L account. The appellant furnished written confirmation that such expenses were not claimed in P L account and furnished a copy of the same alongwith computation in support of the claim. In the absence of any claim made in the P L account at the first place, no disallowance is called for such expenses u/r 8D(2)(i). In view of this, I hold that no disallowance u/s 8D(2)(i) is called for. 5.5 Since the Ld. CIT(A) has given his decision based on factual finding that said expenses have not been claimed in the profit and loss account, and said finding has not been disputed by the learned DR, though in the ground it is submitted that disallowance has been deleted without affording an opportunity to the Assessing Officer. However, we find that before us no material has been brought on record to dispute this factual finding that those expenses were not claimed in the profit and loss account. In view of the above, we do not find any error in the order of the Ld. CIT(A) and accordingly we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances, evidently the appellant company, which is a Mini-Navratna CPSE, could have made investment out of its surplus funds. However, it does not imply that it was barred from using borrowed funds. 6.7 Keeping in view the above, I uphold the action of the Ld. AO in making disallowance under Rule 8D, which was the only method prescribed by u/s 14A. The Ld. AO has duly followed the prescribed method under Rule 8D and accorded due opportunity to the appellant in this regard and the note of lack of satisfaction with the claim of the appellant is held to be on cogent ground. However, I hold that no disallowance u/r 8D(2)(i) is called for, for Management Fee (₹ 40.7-7 lakh) and Trusteeship Fees (₹ 1.24 lakh). Accordingly, Ground No.2 of the appeal is partly allowed. 6.1 We further find that the Tribunal in ITA No.3079/Del/2014 in the case of the assessee itself for assessment year 2009-10 has adjudicated the issue in dispute as under: 32. We have carefully considered the rival contentions. Admittedly, the assessee has availability of fund of ₹ 2128 crores which does not carry any int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting from 1972 to various Rural Electrification(RE) co-operative societies established by the concerned state government. The purpose of granting such loan was to promote rural electrification co-operative societies in the country. As per the terms of the loan, the assessee (REC) foregone or waived the interest on such loans for first 5 years, with the condition that special reserve fund is to be created and maintained by the co-operative society and that said amount of the interest waived is to be deposited by way of the fixed deposits in banks. The assessee framed certain rules to maintain and utilization of the funds by the co-operative societies. The assessee company was having first charge over the said corpus fund and right to withdraw the waiver granted if the conditions of the loan given were not met. According to the assessee, the interest accrued on these fixed deposits out of special reserve fund to the respective co-operative societies, as those co-operative societies are the owner of the respective funds. It was also submitted by the assessee that interest accrued on those fixed deposit has been included by the respective societies in their return of income filed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Fund in their returns of income. If is seen that some of the societies after disclosing the interest income on such funds claimed the said income as exempt u/s 80P of the Act. Thus it becomes a case where neither the assessee nor those societies are paying tax on the interest from said deposits. Further, the income has to be taxed in hands of the persons to whom that belongs. Just because another entity has wrongly offered the said amount in its return does not absolve the assessee from its legal obligation. 4. The assessee s contention that the ownership of the special funds was with the respective cooperatives is not correct, as it is evident from the various rules governing the management and operation of these funds that the real ownership of these funds vested in the assessee corporation and the respective cooperatives only acted as custodians of these funds. The mere fact that the FDRs were in the names of the respective cooperatives is of no consequence when the co-operatives cannot exercise their rights as owners of these funds and the entire control over the management, operation and utilization of the funds is with the assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-operative Society Siricilla, all the societies had accounted for this interest income in their respective income tax return. The Ld. CIT(A) observed that Siricilla Society also made investment in REC bonds out of the special fund in addition to making FDRs in banks. Thus, the Ld. CIT(A) was of the view that interest on special fund by other RE co-operative societies could not be taxed in the hands of the assessee, however, in case of Siricilla Society, he followed the finding of the Tribunal Hyderabad bench and held that the interest income of ₹ 1,29,25,650/- from FDR s out of special fund of Siricilla society, as income of the assessee. In respect of the few other societies also the Ld. CIT(A) held the interest income as belonging to the assessee due to non-filing of documentary evidences observing as under: 6.12.2 Since Mula Pravara Society has been merged with MSEDC, interest income on the FD created out of its special reserve fund, cannot be charged in the hands of the appellant. Besides the said society has been showing interest income in its hands on which deduction u/'s 80P has been claimed by it. Therefore there was no reason to treat interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whereas the Ld. Counsel of the assessee supported the order of the Ld. CIT(A) and submitted that issue in dispute in the grounds raised by the Revenue has been decided against the Revenue by the Tribunal in ITA No. 3010/Del/2014 for assessment year 2006-07. 7.9 We have heard the rival submissions and perused the relevant material on record including the order of the Tribunal in the case of the assessee itself. We find that the Tribunal while deciding the appeal of the Revenue in ITA No. 3010/Del/2014 for assessment year 2006-07 has adjudicated the issue in dispute as under: 25. We have carefully considered the rival contentions and also perused the orders of the lower authorities. In the present case the Id CIT(A) has deleted the addition with respect to those societies whose confirmation of offering the interest income in the hands of those societies was finished by those societies. In absence of those certificates the additions were confirmed. The Id Departmental Representative could not point out any infirmity in the order of Id CIT(A). We are also of the considered view when the income has been offered by those societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) agreed that the interest on FDR made out of the special reserve fund maintained by the co-operative societies should be assessed in the hand of those respective societies and not in the hands of the assessee, however in the case of Siricila Society, the Ld. CIT(A) has followed the decision of the Tribunal, Hyderabad Bench, and decided the issue against the assessee. The Ld. counsel submitted that the assessee was not party before the Tribunal Hyderabad Bench and thus could not get occasion either to present its case or challenge the said decision before the Hon ble High Court. He submitted that applying the said decision of the coordinate bench against the assessee is a clear violation of the principle of natural Justice. He further submitted that the coordinate bench, Hyderabad has incorrectly interpreted the special fund rules and incorrectly concluded that ownership of the special fund lies with the assessee. According to him, the assessee was not having any right to receive the income from such funds and, therefore, no income accrued to the assessee. The learned counsel referred to page 108 of the Paper Book filed by assessee and also submitted that tax on the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterating the same facts the Id AR has not produced any other evidence or any evidence of decision of the higher forum where the order of the coordinate bench is challenged by the assessee. In this circumstances we also respectfully following the decision of the coordinate bench based on which reopening has been initiated, we also confirm the addition of ₹ 9070673/-. Accordingly, ground no. 2 of the appeal is dismissed. 9.4 On perusal of the above decision of the Tribunal (supra) , we find that the Tribunal not only on the principle of the judicial discipline, but also relied on the finding of the coordinate bench that rules and other criteria related to creation of the special reserve fund and its control established that interest accrued in the hands of the assessee. Thus, respectfully following the above decision, the ground No. 3 of the appeal of the assessee is dismissed. 10. In result, the appeal of the Revenue is partly allowed, whereas the appeal of the assessee is partly allowed for statistical purposes. 11. Now, we take up the cross appeals of the assessee (ITA No. 6327/Del/2014) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies but taxable in the hands of the assessee i.e. M/s REC Ltd. 4. On the facts and circumstances of the case and in law Ld. CIT(A) has erred in allowing re computation of deduction u/s 36 (1) (viii) and 36 (1) (vii a) (c). 5. The appellant craves leave to, add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing. 12. The issue involved in ground No. 1 and 1.1 of the present appeal of the Revenue, are identical to ground No. 1 of the appeal of the Revenue having ITA No. 5060/Del/2014 for assessment year 2010-11, which we have already dismissed. Thus, to have consistency in our decision, the grounds No. 1 and 1.1 of the present appeal are also dismissed. 13. The issue raised in ground No. 2 of the appeal of the Revenue and grounds No. 1 and 2 of the appeal of the assessee for the year under consideration are identical to ground No. 2 and 2.1 of the appeal of the Revenue and ground No. 1 and 2 of the appeal of the assessee for assessment year 2010-11 respectively, accordingly to have consistency in our decision, the ground no. 2 of the appeal of the Revenu ..... 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