2018 (2) TMI 1588

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.... of the Income Tax Act [Act]. AO noticed that the assessee had claimed substantial deduction on account of interest and finance charges to bank and others (Rs. 5,69,37,061/-). As per the Balance Sheet as on 31-03-2009, assessee had secured loans aggregating to Rs. 10,68,00,085/- as against Rs. 9,28,26,372/- as on 31-03-2008. Similarly secured loan liability was Rs. 17,58,25,760/- (against Rs. 17,53,52,860/-). It was further noticed that as per the said Balance Sheet, the assessee has total investments of Rs. 1,43,21,96,137/- as on 31-03-2009. Assessee claimed that it expanded its activities in the power sector for which investments were made in Konaseema Gas Power Ltd. During the assessment proceedings it was explained that assessee-company made investments in earlier years in KGPL (formerly Konaseema EPS Oakwell Power Ltd. (KEOPL) and Rs. 9.9 Crores in other companies. During the previous year relevant to assessment year under consideration, it made further investment of Rs. 2,82,67,573/- in the share application money of M/s.KRAEL. It was submitted that since the Ferro Alloys is a power intensive industry and power charges account for about 50% of the cost of production, it had p....

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....raw quality power at lower rate for its ferro alloys plant. Assessee submitted that the ITAT, Hyderabad in assessee's own case for AYs. 2005-06, 2004-05 and 2003-04 in ITA Nos. 1763 and 842/Hyd/08 and ITA No.919/Hyd/06 dated 03-11-2009 deleted the disallowance of interest made by the AO for those years. 4. Ld.CIT(A) following the orders of ITAT in earlier years and order of CIT(A) in AY. 2010-11 had allowed assessee's contentions as under: "6.10 The Commissioner of Income Tax (Appeals) III vide the Appeal No.03021 DCIT 3(3)/CIT(A)-II, Hyd/2014-15 for assessment year 2010-11, following the above orders of Hon'ble ITAT directed the Assessing Officer to allow the total interest of Rs. 3,23,11,701 for the Assessment Year 2010-11. 6.11 In tune with the directions given by the Honourable ITAT the assessing officer verified whether the investments made by the appellant were for the purpose of business or not and pass order u/s 143(3) read with section 254, on 15 March 2014 for both the years 2007-08 and 2008-09. The assessing officer has recorded that the investment was made for the purpose of business in order to purchase the power at concessional rate. ....

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....e 8D(2)(iii) of the Income Tax Rules, 1962 was ignored". Ground Nos. 1 & 4 are general in nature. 5.1. On the disallowance confirmed u/s. 14A, assessee has raised the following grounds and additional grounds: GROUNDS OF APPEAL "1. The Order of the Commissioner of Income-Tax (Appeals)-5, Hyderabad dated 29-02-2016 is erroneous, contrary to law and facts of the case. 2. The Commissioner of Income Tax (Appeals) erred in law in directing the Assessing Officer to disallow interest of Rs. 3,91,90,153/- for the assessment year 2009-10 applying Sec.14A r.w.r.8D(2)(ii) on the ground that expenses incurred in relation to income not chargeable to tax are disallowable. 3. The Commissioner of Income Tax (Appeals) failed to see that the Appellant made its investments (both old and during the year) out of its own funds and that too due to business expediency but did not utilise any borrowed funds and therefore there is no justification for sustaining disallowance of interest of Rs. 3,91,90,153/-. Commissioner of Income Tax (Appeals) ought to have seen that Hon'ble Income Tax Appellate Tribunal in similar circumstances held that disallowance of interes....

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....earned during the year was Rs. 59,000/- only. 7. After considering the rival contentions, we do not see any reason to interfere with the findings of Ld.CIT(A) holding that the investments are for business purposes and no amount of interest can be disallowed u/s. 36(1)(iii). The order of Ld. CIT(A) is as per the finding of facts by AO in consequential proceedings and in tune with the orders of ITAT in earlier years. To that extent, the order of CIT(A) and findings upto para 6.12 are confirmed. There is no merit in Revenue's grounds as AO has given consequential orders accepting assessee contentions on verification, when the matter was remanded to him even in later year of AY. 2010-11. In the result, appeal of Revenue is dismissed. 8. Coming to the appeal of assessee, we are not in agreement with the order of CIT(A) partially disallowing the amount. First of all, he has not given any opportunity to assessee before invoking the provisions of Section 14A, which AO has not considered. Agreed that he has coterminous powers as that of AO, but he has to follow the principles of natural justice by giving an opportunity to assessee to explain. On that reason, the order of CIT(A) is not....